When determining and naming a beneficiary, you must first understand the type of beneficiary you are designating to receive a benefit and decide if they will be the primary or secondary (contingent) beneficiary. This is considered a legal designation; you are assigning a person or persons to receive either a payout, such as from a life insurance policy or the balance of your personal assets after you die.
- Anyone who will suffer financially by your loss may likely be your first choice to be a beneficiary. Also, keep in mind that you can split the benefit among multiple beneficiaries as long as the total percentage of the proceeds equals 100 percent. Naming a trustworthy adult, such as your spouse, for example, is one way of having your beneficiary distribute your benefits. You are relying on their judgment to consider giving money to help or benefit other family members or loved ones.
- Children under the age of 18 may be named as a primary or contingent beneficiary. However, if you were to die while they are still minors, the proceeds may be sent in their name to the legal guardian of the minor child’s estate. In this situation, making accommodations for the minor(s) by establishing a trust fund for them could be considered. You can name the trust fund as the beneficiary where distribution would take place after the child or minor reaches the designated legal age.
- It would seem logical to name someone who will need financial support throughout their lifetime as your beneficiary, but doing so could make them ineligible to receive government assistance in the future if ever needed. This might mean a significant loss in financial support for them in future years. So, when considering this option to help a friend or relative, understanding their situation is important.
- Establishing a special needs trust and naming the trust as beneficiary is another way to channel your assets or life insurance death benefit. However, for someone with special needs, make sure this does not trigger laws that may work against them. Consulting an attorney who specializes in estate planning is an option to consider.
- You may also want to consider charities and other cause-related organizations as beneficiaries. If you have a nonprofit you feel passionate about, you may name it as a primary or contingent beneficiary to receive all of or a percentage of your assets or life insurance payout. Doing so can be your way to leave a legacy.
Keep in mind that assigning beneficiaries does not mean you can never change them at a later time. No one can predict the future, so at times adjustments have to be made when it makes sense. It is important to keep your living will and beneficiaries for your insurance policies and personal assets – which includes not only your financial accounts, but personal belongings and home – updated. And, if you are worried about assigning beneficiaries, consider consulting a financial professional or attorney to work with you to help you carry out your wishes.