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What You Need to Know About Beneficiaries

What You Need to Know About Beneficiaries

What Is a Beneficiary?

A beneficiary is an individual who is chosen to receive the benefits of property, typically in the event that the owner passes away. The benefits are often monetary, but they can also be anything else of value that is being passed down. Beneficiaries are named in many locations:

  1. Life insurance policies
  2. Last Will and Testament
  3. Retirement accounts
  4. Brokerage accounts 
  5. Bank accounts 
  6. Social Security Disability (in certain cases)
  7. Other financial products 

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How Do Beneficiaries Work? 

When policies, wills, or accounts are created, the owner is asked to choose a beneficiary—someone who will receive the benefits of the account, property, or other financial products—after the owner passes away. Within these various documentations, the benefactor (or, the one who is providing the benefits to another) can add stipulations. For instance, they may require that the beneficiary reach a certain age before receiving the inheritance. 

 

Why Are Beneficiaries Important?

If a beneficiary is not chosen, then there is no clear indication what will happen to your money or your property when you’re gone. Choosing beneficiaries can ensure not only you are aware of where your money will go, but that others involved are as well. 

 

Types of Beneficiaries 

There are two types of beneficiaries. 

  1. Primary Beneficiary: the person or organization that is the first choice made by the benefactor to receive the benefits upon their passing. This person can be named in a Will and Testament or in any of the other documents listed above. 
2. Contingent Beneficiary: the person or organization that is the second choice made by the benefactor to receive the benefits upon their passing. The contingent beneficiary would only receive the benefits if the primary beneficiary is no longer living or cannot be located. 

Someone can also choose more than one primary or contingent beneficiary. If more than one is chosen, the benefactor must list how the assets should be divided among them.  

Community property states automatically make a spouse the primary beneficiary on life insurance policies. If a different beneficiary is desired, the spouse must sign their consent. These community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

 

How to Choose a Beneficiary 

Choosing a beneficiary can be challenging. Many factors can affect the decision, such as whether the individual is single or married, what the family dynamics are like, and even who is trusted with important assets. Therefore, when deciding upon a beneficiary, make sure to consider the following:

  • What family members may need financial assistance?
  • Does anyone currently depend on you financially? 
  • Are there any non-family members who have played an important role in your life?
  • Are there any organizations that you have a personal tie to that could use your financial support?

What Happens If I Don’t Choose a Beneficiary?

If you do not choose a beneficiary for your assets, then the decision as to whom will receive those assets will be made by a financial institution or a court within your state of residence. 

If you do not choose one in the moment you’re asked by a company upon opening a particular account, but then later change your mind, you can request the paperwork allowing you to designate one (or more) beneficiary. You can then fill it out and send it to the company, which can usually be done online.

 

 

Additional Resources

You can stay informed, educated, and up to date with important HR topics using BerniePortal’s comprehensive resources:

  • BernieU—free online HR courses, approved for SHRM and HRCI recertification credit

  • BerniePortal Blog—a one-stop shop for HR industry news

  • HR Glossary—featuring the most common HR terms, acronyms, and compliance

  • Resource Library—essential guides covering a comprehensive list of HR topics

  • HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics

 

 

 

 

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