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Infographic helping to explain What is a beneficiary

Understanding What Is a Beneficiary

Understanding what is a beneficiary is essential to someone writing a will, and someone who is listed, as a beneficiary. A beneficiary is a person or entity that is designated to receive benefits or payments from:

  • Will
  • Trust
  • Insurance policy
  • Retirement account
  • 401K
  • Stocks
  • or other financial arrangement

Beneficiaries play an important role in estate planning and financial planning. Listing beneficiaries will determine who will receive the assets and benefits in the event of the owner’s death or incapacity.

Types of Beneficiaries

There are 3 main types of beneficiaries: primary, secondary, and contingent. Here is more information about each.

Primary Beneficiaries

Primary Beneficiaries are the first individuals (or entities) to receive benefits or payments from a financial arrangement.

Secondary Beneficiaries

Secondary beneficiaries will receive benefits or payments in the event that primary beneficiaries are unable to do so.

Contingent Beneficiaries

Contingent beneficiaries receive benefits or payments only if specific conditions are met. Conditions could be such as the death or incapacity of primary and secondary beneficiaries

Designating Beneficiaries

Designating beneficiaries is crucial. Read more about the importance of designating and how to designate below.

Importance of Designating Beneficiaries

Designating beneficiaries is a critical aspect of both estate planning and financial planning. You ensure that your assets and benefits go to the people or entities you choose. Moreover, it can prevent probate and legal complications.

How to Designate Beneficiaries

You can designate beneficiaries through various legal documents such as a will, trust, insurance policy, or retirement account. The process usually involves naming the beneficiaries, and submitting any required documents or information.

Changes to Beneficiary Designations

Read below to find out more about changes to beneficiary designations.

Reasons for Changing

Beneficiary designations can be changed for a variety of reasons, such as a change in circumstances, a change in the owner’s wishes, or a change in the law.

How to Change Beneficiary Designations

To change a beneficiary designation, the owner must complete a new designation form and provide any necessary documentation or information. The change may also require the approval of the financial institution or other party responsible for administering the financial arrangement.

Benefits of Designating Beneficiaries

Generally, there are three main benefits of designating beneficiaries: avoiding probate, tax savings, and protecting assets. Read more about each below.

Avoiding Probate

Firstly, designating beneficiaries can help avoid probate by directly distributing assets and benefits to the beneficiaries without court involvement.

Tax Savings

Secondly, designating beneficiaries may result in tax savings as the transfer of assets and benefits can sometimes be tax-free.

Protecting Assets

Lastly, by designating beneficiaries, you can protect assets as the distribution will reflect your wishes and will not be subject to claims from creditors or other parties.

5 Estate Planning Items That Don’t Require Beneficiaries in a Will

While designating beneficiaries is a crucial aspect of estate planning, not all items in a will require them. Here are five estate planning items that don’t require beneficiaries:

Personal Property

Personal items, such as clothing, jewelry, and other personal belongings, can be distributed without the need for beneficiaries.

Digital Assets

Digital assets, such as online accounts and social media profiles, can also be distributed without the need for beneficiaries.

Charitable Donations

Donating to a charity or nonprofit organization can also be done without the need for beneficiaries.

Funeral Expenses

Funeral expenses and burial arrangements can be covered without the need for beneficiaries.

Debts and Liabilities

Paying off debts and liabilities can also be done without the need for beneficiaries.

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