Beneficiary

What is a beneficiary?

If you’re drafting a will or a trust, or even just filling out paperwork related to a life insurance policy or a retirement account, you’ll need to designate beneficiaries. Naming a beneficiary—or multiple beneficiaries—lets the executor of your will, or the financial institutions that oversee your accounts, know who should take over ownership of your assets after you pass on.

Having clear designated beneficiaries is important for a few reasons. For starters, it simplifies the process of who will inherit your financial assets and property, which can make the process less stressful for your family members and help prevent uncomfortable disputes over the assets. It also allows you to have full control over the distribution of your money and other assets, ensuring they end up with the people—or organizations—you want them to.

If you don’t have beneficiary designations in your will or added to your financial accounts, your estate could be subjected to a lengthy probate process where the courts decide who should receive your assets. Aside from being long and complicated, the probate process is also expensive, which can significantly reduce the amount of money your loved ones ultimately receive.

FAQ

How many beneficiaries can you have?

There’s technically no limit to the number of designated beneficiaries you can have, and you have the right to decide how your assets are divided up amongst them all. 

You also have the option to designate primary and contingent beneficiaries if you choose. Primary beneficiaries are your first choice beneficiaries, or the ones you most wish to inherit your property. Contingent beneficiaries are people you can choose to inherit your property if your primary beneficiaries die, or are otherwise unable to accept the assets you’ve left them. Contingent beneficiaries are essentially backup beneficiaries.

Who can be a beneficiary?

While many people choose friends and family members as their beneficiaries, your options aren’t limited to people you know—or even people. Charities, nonprofits, and even organizations can be beneficiaries, too.

That said, laws regarding eligible designated beneficiaries can vary by state and according to your specific circumstances. For example, if you’re married, certain states dictate that you must leave a certain percentage of your estate to your spouse. Likewise, the IRS has specific rules for who can and can’t be named as a beneficiary on a retirement account. An experienced estate planner can help you figure out what rules apply to your specific situation.

Can you list a minor child as a beneficiary?

Yes, it’s possible to name minor children as beneficiaries, but it may not always be the best option. Your minor child won’t be able to assume responsibility for the assets until they reach adulthood, so the courts may need to designate a conservator for the estate until they come of age. To avoid this, you could consider putting your assets into a trust for your minor children instead.

Can I change beneficiaries?

Yes, you can change the beneficiaries designated on your will or financial accounts whenever you please or as your circumstances change. As the account owner, it’s relatively easy to update a bank account, brokerage account, or life insurance policy with the new beneficiary’s name, but for a will, it might be easier to create a new, updated will rather than amending the old one. An estate planner or online service such as LegalZoom can help you determine the best way to change your designated beneficiaries.