How To Choose Beneficiaries

Beneficiaries are an important part of your estate plan — people or organizations you name will ultimately benefit from your estate. The benefits can be in the form of money or anything else you pass down. Beneficiaries give purpose and guidance for what you’re leaving behind, which can include Social Security disability, savings and checking accounts, life insurance policies, retirement plans, and a last will and testament,

Some beneficiaries are named directly in policies or plans; others, you’ll list in your will. Choosing a beneficiary is a very personal decision. If you have complicated family dynamics, it might not be so cut and dry. Deciding who should be your beneficiaries may feel like a lot of pressure. You may want to use a death benefit to protect loved ones, while another person might see the task as more of a financial transaction. Here are some tips to keep in mind:

• Beneficiaries are usually family members and friends who rely on you for financial support.
• Benefits won’t be paid to someone under the age of 18. If you want to provide for a minor, name a trustee to manage the account until the child reaches an age that you specify in the trust.
• If you worry that a beneficiary can’t responsibly manage money, you can establish a trust and trustee to invest and disburse funds on the beneficiary’s behalf.
• You can name a secondary beneficiary if your first beneficiary dies.
• Benefits generally go to your spouse first, then your children, parents, siblings and then your estate. Make your beneficiary information thorough so that there are no mistakes and changing your intended wishes will be very difficult.
• It’s logical to name someone who’ll need financial support throughout their lifetime, but you don’t want to make that person ineligible to receive government assistance. You can establish a special needs trust to channel your assets or insurance death benefit without triggering laws that could mean a significant loss in financial support for the individual.
• Many people name charities or other cause-related organizations as beneficiaries. If you support a nonprofit you feel passionate about, you can name it as a primary or contingent beneficiary to receive all or a percentage of your assets. Doing so can be an impactful way to leave a legacy.

Simplify the process

Certain accounts, such as pension plans, retirement accounts and life insurance, ask you to name a beneficiary. On your death, proceeds from these accounts typically go directly to beneficiaries, thus bypassing probate, the slow legal process of distributing your assets after you pass. You’ll be helping your beneficiaries avoid red tape. Probate means that a court figures out how to distribute your funds, leading to delays and confusion. It also can lead to court fees, possibly taxes and payments that reduce the amount your family receives.

Make changes as necessary

Keep your beneficiaries up to date as your life changes. Major life events are a good time to reevaluate beneficiaries; if you’ve recently married, divorced, lost a loved one, or welcomed children or grandchildren, you may want to change how your wealth is distributed.

There are no hard-and-fast rules in naming beneficiaries. It’s completely up to you. Understanding the role a beneficiary plays in your estate plan will help you feel confident in your decision.

Writing your estate plan is a great way to ensure that those you will one day leave behind are protected. What happens if you make a mistake and choose the wrong person to receive your benefits? Or if you survive a beneficiary who is still named in the will? It’s essential you consult with financial professionals and attorneys to ensure your intentions will be carried out the way you wish.