A beneficiary is a person or entity who is appointed to receive assets if you pass away.
When planning for the future, it’s helpful to understand how beneficiaries work and the requirements around them. For example, some states may require the beneficiary to be a certain age before they can directly inherit. Designating a beneficiary can ensure your estate is managed correctly, helping your family coordinate necessary arrangements.
Let’s explore bank account beneficiaries, including why they matter, types of beneficiaries and what happens if you don’t designate a beneficiary.
When do you choose a beneficiary?
You might be asked to choose a beneficiary when:
- Buying a new life insurance policy
- Creating a will
- Opening an IRA
- Opening other types of investment or bank accounts
Why are beneficiaries important?
Choosing a beneficiary is important to ensure that, after your death, your assets are properly distributed to the people you select, which may include family members, loved ones and any organizations you might support.
Bank account beneficiaries, for example, can ensure that your spouse or dependents will have immediate access to those account funds when you pass. That’s one less thing for them to worry about during an emotional and overwhelming time.
What happens if I don’t designate a beneficiary?
If you don’t designate a beneficiary, the process of dividing your assets can become lengthy and complicated, and assets may not be distributed according to your wishes. For example, 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.
How beneficiaries inherit assets
After someone’s death, their assets are passed directly to their chosen beneficiaries. 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, retirement plans or bank accounts.
Regularly updating your beneficiaries can ensure that your plans align with your current wishes and circumstances.
Types of beneficiaries
There are a few common types of beneficiaries.
- A primary beneficiary is the first-named person to receive assets after an individual passes away — they get the assets as long as they are willing or able to take them on.
- 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.
- You may also be able to designate multiple beneficiaries, splitting the assets among them according to your instructions.
Bank account beneficiary rules
- If the beneficiary named in the will is different from the one named in the bank account paperwork, the beneficiary named on the specific asset typically takes precedence and overrides the will.
- Some states may give priority to a spouse, in which case they may still be entitled to half of those funds even if you designate another beneficiary.
- Joint account assets won’t go to the beneficiary until all account holders have passed.
- There may be tax implications for your beneficiary, depending on the asset. Consulting a tax professional may help you understand what those would look like based on your circumstances.
Choosing a beneficiary
When choosing a beneficiary, consider the people or organizations to which you feel dedicated and committed. You might also keep in mind 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.
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.
