What is a beneficiary?

Summary: The term beneficiary is often used when discussing life insurance, wills, health insurance, finances, and other legal matters. But do you know what it actually means?

In this article:

When is it best to use a trust?

A trust can be listed as a beneficiary to keep your assets until a later time. The trust agreement allows a third party, like a bank, to hold your money or assets on behalf of your beneficiary until they can accept it based on the terms you set.

For example, you may wish to leave all assets to a trust that names all grandchildren – present and future – as beneficiaries. You decide that your grandchildren need to be 18 years of age before they can draw from the trust, and the amount they can draw can be capped at a certain amount each year. The terms of the trust can help make sure your wishes are met.

If your chosen loved ones are minors, a trust is a safe way to help protect your assets until they are legally able to receive them. Trusts can also help your loved ones avoid probate court, which is a court that deals with the distribution of your assets in the event of your death.

To set up a trust, you’ll need to work with an attorney. While attorney’s fees can add up, their help setting up a trust that can save your loved ones money on taxes over the long haul may be well worth the extra costs.

Can you have multiple beneficiaries?

Yes! You could list your spouse and all of your children. Some plans let you have as many as 50 beneficiaries.

In many plans, including some 401ks, you can define a specific percentage for each of your beneficiaries to receive. For example, your spouse could get 50% and your two children could each get 25%. Or you could leave 50% to a charity that’s close to your heart and give the remaining 50% to a trust in your grandkids’ names.

What are primary and contingent beneficiaries?

In some cases, in your beneficiary information, you may want to make the distinction between primary and contingent beneficiaries. A primary beneficiary is the person who would get your assets in the event of your death. A contingent beneficiary would only receive benefits in the event of the primary’s death.

Can you change your beneficiary?

Yes, and there are many times that you should. As new people come into your life or new things become important to you, you may want to change your beneficiary. After all, you can’t forget to include surprise grandchild number 5!

Other times, you may want to update your beneficiaries when you’re buying/selling a home, if you get married or divorced, or if your assets increase. (Winning the lottery is possible, after all!)

How do you update your beneficiary?

If you’re purchasing life insurance or setting up your will for the first time, you will name your beneficiaries then. If you already have a life insurance policy, retirement account, or will, you’ll need to update your beneficiaries. There are several ways you can do this:

What information will I need to name or update a beneficiary?

If your beneficiary is a person:

1Full legal name of beneficiary

2His/her social security number

3Mailing address, phone number, and/or email address

If your beneficiary is a charity:

1Confirm that the charity will accept proceeds of a life insurance policy or retirement plan as a donation

2Full name of charity

3Address

4Tax ID number – you can find this by looking at the IRS’s Tax Exempt Organization search

Why are beneficiaries important?

Planning for things that happen after your death can be overwhelming. But selecting your beneficiary carefully and intentionally is a key part of estate planning that shouldn’t be overlooked. Consider what’s important to you, what you want for your loved ones, and what you’d like your legacy to be. That way, when you choose your beneficiary, you can be confident that things may be taken care of on your terms even after you’re no longer living.