A beneficiary is a person or entity who is appointed to receive assets after you pass away. It’s helpful to be aware of certain stipulations surrounding beneficiaries. For example, a beneficiary must be a certain age before they can directly inherit in some cases, and these rules can vary by state. Designating a beneficiary can ensure your estate is managed correctly, helping your family coordinate necessary arrangements.
When do you choose a beneficiary?
You might be asked to choose a beneficiary when enrolling in a new life insurance policy, drafting a will, opening an IRA or opening other types of savings, retirement or investment accounts. At the time of your passing, ownership of these accounts will be transferred to your beneficiary. Choosing a beneficiary ahead of time helps ensure this process goes smoothly.
Why are beneficiaries important?
Choosing a beneficiary is important to ensure that, after your death, your assets are properly distributed to your designated beneficiaries, which may include family members, loved ones and any organizations you might be dedicated to. If you fail to name a beneficiary, the process of dividing your assets can become lengthy and complicated, and assets may not be distributed according to your wishes.
How beneficiaries inherit assets
After an account or asset owner’s death, assets are passed directly to the chosen beneficiaries, allowing recipients to bypass probate. Whether your beneficiary is a person (such as a spouse or child) or entity (such as a charitable organization), they could inherit any assigned money, property, or other benefits from your assets and accounts like life insurance policies or retirement plans.
Regularly updating your beneficiaries will ensure that your assets align with your current wishes and circumstances. Be aware of beneficiary rules: In the event that the beneficiary named in the will is different from the one named on the asset’s financial paperwork, such as a bank account, it is typically the case that the beneficiary named on the specific asset takes precedence and overrides the will. Also, keep in mind that there may be tax implications, depending on the asset.
Types of beneficiaries
The most common types of beneficiaries are primary and contingent beneficiaries:
- A primary beneficiary is the first-named person to receive assets after an individual passes away
- A contingent beneficiary is the second-named person to receive assets after an individual dies. A contingent beneficiary will receive assets if the primary beneficiary is unable to do so.
Choosing a beneficiary
When choosing a beneficiary, consider the people or organizations (such as charities) to which you feel dedicated and committed, and consider any individuals you’ll want to support— for example, a beneficiary might be a spouse or child you want to ensure is taken care of.
What happens if you don’t name a beneficiary?
Failing to name a beneficiary can lead to complications during the distribution process. When no beneficiary is designated, the asset may go through probate, a legal process that determines how the asset is distributed according to your will (or state law). This can cause delays, legal fees, and added stress for your loved ones. To avoid any unnecessary difficulties, be sure to keep your financial paperwork up to date.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
