How to Name a Beneficiary

When thinking about your financial goals, it's easy to get caught up in big dreams—a new home, an exciting vacation, or even a comfortable retirement. However, another crucial aspect to consider is naming beneficiaries for your accounts. If you pass unexpectedly, this simple step can spare your loved ones from legal hassles and heartache.

What Is a Beneficiary?

A beneficiary is the person or entity receiving your assets when you pass away. This can be anyone: a family member, a trust, a charity, or a friend. Unlike heirs, who inherit based on legal entitlements, you specifically name beneficiaries. For example, the beneficiary of a life insurance policy receives the death benefit without lengthy court processes.

Should You Name a Beneficiary?

According to CNBC, it’s essential to name beneficiaries for life insurance policies, retirement funds, bank accounts, and other assets. Without beneficiaries, your estate might spend months or years in probate. While the courts decide how to divide your assets, your loved ones will go without the financial support you left them.

Who Can Be a Beneficiary?

You can name almost anyone as a beneficiary. Here are some common choices:

• Individuals: Family members, friends, or other loved ones.
• Charities: Organizations you support.
• Trusts: Entities set up to manage your assets for specific purposes.

Some states have rules requiring certain beneficiaries, such as a spouse. Researching your state’s laws during estate planning is important so your beneficiary choices align with legal requirements.

What to Consider When Choosing a Beneficiary

Choosing a beneficiary is a significant decision that shouldn't be rushed. Here are some factors to consider:

• Relationships: Think about who will need financial support after you're gone.
• Financial Needs: Consider the financial stability of your potential beneficiaries.
• Tax Implications: Different beneficiaries might face different tax burdens.
• Age and Capability: Naming minors or individuals with disabilities as beneficiaries can complicate things. In such cases, setting up a trust might be a better option.

How to Designate a Beneficiary

Designating a beneficiary is usually straightforward. First, gather the necessary information, including the beneficiary's full legal name, relationship, and possibly Social Security number.

Next, contact the institutions that hold your accounts. Each provider will have its own process for naming beneficiaries. You can do this online or through a written request rather than in person.

When Should You Update Your Beneficiaries?

Your life circumstances change, and so should your beneficiary designations. It's important to update your beneficiaries when a major life event occurs. Changing your marital status, job status, or having a child are all good reasons to reevaluate your beneficiaries.

What Happens If You Don’t Name a Beneficiary?

If you don’t name a beneficiary, your assets could be tied up in probate. This means your loved ones might have to wait months or even years to access the funds you intended for them. In the case of life insurance, if no beneficiary is named, the payout will go to your estate and be distributed according to state law, which might not align with your wishes.

Key Takeaways

• Ensure Your Wishes are Honored: Naming a beneficiary guarantees your assets are distributed according to your wishes.
• Avoid Probate: Proper beneficiary designations can help your loved ones avoid lengthy and costly probate processes.
• Flexible Beneficiary Designations: You can name almost anyone as a beneficiary, including individuals, charities, and trusts.
• Update Your Designations: Regularly updating your beneficiaries ensures your designations reflect your current wishes and circumstances.

If you need to designate a beneficiary but are still unsure about who to choose, or if you are dealing with a probate case, we are always happy to help.  Our Los Angeles area probate lawyers in Los Angeles can guide you through it.

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Reference: CNBC (Feb. 23, 2024) “Naming a beneficiary can save your loved ones a lot of heartache — here's how to do it”