A beneficiary is someone (or sometimes an entity) who is designated to receive benefits property belonging to another in the event of their death. Often, the benefits received are financial ones related to financial accounts owned by the benefactor.
What Is a Beneficiary?
A beneficiary is a person (or entity) who is designated to receive the benefits of property owned by someone else. Beneficiaries often receive these benefits as part of an inheritance.
How Beneficiaries Work
After you pass away, a designated person or organization can be named a beneficiary to receive your property. Your designation can have various stipulations on the disbursement of property, such as the requirement that a beneficiary attain a certain age or be married before taking control of the inherited property.
If you pass away and fail to name beneficiaries in a will, it can tie up your property in probate potentially for years and can leave any distribution of assets to be decided by the courts.
Why Is It Important To Name a Beneficiary?
When you name beneficiaries, you not only provide clarity to all involved, but you get to control what happens to your assets after you pass. It is a way to simplify the settling of your estate and it can even reduce potential stressful situations for your loved ones.
Types of Beneficiaries
Primary
A primary beneficiary is basically your first choice of beneficiary. While you may designate other beneficiaries, the primary beneficiary will receive all the assets in an account.
Contingent
A contingent beneficiary is a secondary beneficiary. They shall receive the account benefits only if the primary beneficiary is no longer living or cannot be located. You can name more than one contingent beneficiary and how the assets would be divided between them.
How To Choose a Beneficiary
A few places to consider when selecting your beneficiaries:
- Take a look and assess the relationships you have with family members and who may need your financial help.
- Also, review and analyze your friendships. Would you like to give a gift to a friend that has remained loyal to you through the years?
- Another place to look at and consider are organizations that you’ve supported over time and whether they can use your financial support or not.
Ultimately, the beneficiaries you designate should be people or entities that you trust and care about.
Beneficiary Designation Process
Typically, when you first open a financial account, companies ask that you provide beneficiary information. You can always request a form at any time and this can usually be done online or in person. You should maintain a copy for your files.
What Happens If You Don’t Name a Beneficiary?
Not choosing a beneficiary means you may be leaving distribution decisions of your assets to the courts which abide by the state laws that you live in. For this reason, it is important to select one or more beneficiaries to have your wishes acknowledged. Contact our Orange County estate planning attorneys if you need assistance. We’d be happy to help!
What Happens When a Beneficiary Is a Minor?
Minors are not self-reliant. They depend on others and given they are not yet adults, they are not of age to hold property and such. However, a structure can be set up to hold assets in custody for the minor. Likewise, a trust offers the same effect and allows you to be more specific as to when the minor can obtain such assets when they reach a certain age.