By Rocco A. Carriero, CRPC®
In a prior article, I outlined key steps to take in creating an estate plan, including trusts and wills. Critical for both of these documents is the naming of beneficiaries. Below is a primer on beneficiaries to help you understand what beneficiaries are and guide you in naming specific beneficiaries.
What’s a beneficiary?
Beneficiary originates from Latin and means “one who receives profits or advantages.” A beneficiary is a person designated as the recipient of funds or other property usually through a will, trust, or insurance policy. By designating beneficiaries, you have the final say over who receives your “death benefit.” If you don't choose one, your state determines it.
Who can I name as a beneficiary?
You can name any person (spouse or other individual), organization/entity, trust or estate.
What is the difference between a primary and contingent beneficiary?
A primary beneficiary receives the proceeds of your account in the event of your death. Most married account holders name their spouse as primary beneficiary. If you name several primary beneficiaries and one dies before you, then that share is divided equally among the surviving primary beneficiaries (unless you indicate otherwise). If none of your primary beneficiaries survive you, then the share goes to the contingent beneficiary(s). A contingent beneficiary is an alternate person, organization/entity, trust or estate who receives the specified share of your account if none of your primary beneficiaries survive you. A contingent beneficiary does not need to be named but it is often recommended that you do so.
Do I have to name a contingent beneficiary?
No. Note that your contingent beneficiary only receives the proceeds if there are no surviving primary beneficiaries at the time of death.
How many beneficiaries can I name?
You can designate numerous primary and contingent beneficiaries.
Can a minor be named a beneficiary?
Yes, but at the time of your death, if any of the named beneficiaries is a minor, a guardian must manage the account until the beneficiary reaches the age of majority (typically age 18 or 21 depending on state law). For specific legal implications regarding beneficiary designations, contact your legal advisor. Your right to designate a beneficiary is subject to applicable state law. Similarly, a guardian should be named for a special-needs individual.
Can I change my beneficiaries?
In most cases, you can change beneficiaries at any time. Therefore, it can help to regularly review your will and insurance policies especially when your life changes, such as when you get married/divorced, have a baby or when a child moves out of the house – or back into it.
What if I live in a community property state?
If you live in a community property state (AZ, CA, ID, LA, NM, NV, TX, WA or WI) and do not designate your spouse as sole primary beneficiary, your spouse must sign the appropriate section of either the Account Application or Change of Beneficiary form.
What happens to my account if I do not name a beneficiary?
If you do not designate a beneficiary or all of your primary and contingent beneficiaries predecease you, your surviving spouse becomes your beneficiary if you are married at the time of death. If you do not have a surviving spouse, payment of your account is made to your estate.
How does marital status affect my account?
A change in marital status may impact your estate planning if you do not update your beneficiary designations. You may want to consult your legal advisor for clarification. If you are not married and/or have a “life partner” or same-sex partner it is important to work within the laws of your state.
What happens after I die?
Upon death your beneficiaries or person handling your estate should work with your legal advisor.
About the author: Rocco A. Carriero, MBA, CRPC®, APMA®
Rocco A. Carriero is a comprehensive wealth advisor specializing in working with business owners, CEOs, and entrepreneurs. He is a Chartered Retirement Planning Counselor, Accredited Portfolio Manager Advisor, and holds an MBA in banking and finance with over 20 years of experience. Rocco has appeared on Fox and NBC; his financial insights have been featured in publications including the Wall Street Journal, Forbes, Fortune, Wealth Management Magazine as well as many other local and regional publications. Rocco is a member of the Columbus Citizens Foundation and has served on the board of directors of The American Heart Association, Southampton Business Alliance, East End Hospice, and Westhampton Beach Performing Arts Center and serves as the vice president of Integrated Medical Foundation.
Got Questions About Your Taxes, Personal Finances and Investments? Get Answers!
Email Jeffrey Levine, CPA/PFS, chief planning officer at Buckingham Wealth Partners, at: AskTheHammer@BuckinghamGroup.com.