All the accounts you should have a beneficiary for (and how to choose one)

Most people know that if you have life insuranceyou must name a beneficiary, that is, the person or entity who receives the payment. For most of us, this is the beginning and end of our relationship with the concept, in part because we do not have the kind of wealth that we believe requires caring about where it goes (the value net median in the United States is only $192,900after all), and partly because people might assume that our spouse or family will automatically inherit All.

But you need to name beneficiaries for more than just life insurance. Designating beneficiaries to your assets and estate provides several real benefits, and if you haven’t updated these designations in a while, you should review and change them as soon as possible.

Beneficiary Benefits

You might assume that if you die, your property and assets will automatically pass to your spouse, children, or closest relative (like a sibling). But this is not necessarily the case, and even if it is Ultimately It turns out that dying without a will or beneficiaries (called “intestate succession”) can trigger a lengthy and frustrating probate process controlled by state laws. This can sometimes take years, causing a lot of emotional and financial stress for your loved ones.

And even if you have a last will and testament, you must designate beneficiaries of your property, because beneficiaries replace your will. If your will indicates that your asset goes to your spouse, but you listed your brother as the beneficiary, your brother will end up receiving that asset. Ultimately, beneficiary designation gives you control over what happens to your money after you die and saves your family and loved ones a lot of heartache.

Most of your financial assets should have a current beneficiary named, including:

• Life insurance: This is probably the most obvious case for most of us. If you have life insurance as a job benefit, you should make sure you have named a beneficiary.

• Bank accounts: Your checking and savings accounts may have beneficiaries, and naming one can make the process of accessing those beneficiaries after your death much quicker and much easier.

• Investment and retirement accounts: This includes health savings accounts (HSAs) and 529 accounts.

• Annuities: Likewise, designating a beneficiary for any annuity you have purchased can make the process of transferring it to someone else much easier.

When determining the beneficiaries of your assets, there are two other things to consider:

• Keep them updated. If you haven’t recently reviewed your designated beneficiaries, do a quick audit to ensure your choices still reflect your current relationships and desires (the obvious example here would be an ex-spouse who is still listed as a beneficiary on your insurance). life).

• Conditional beneficiaries. You also need to make sure each asset has a named contingent beneficiary – a “backup” in case your primary beneficiary predeceases you.

How to select your beneficiaries

Once you realize how important it is to name the beneficiaries of all your accounts, the challenge becomes choosing the right person. While this may seem obvious to many of us, there are a few key considerations:

• Age: Minors cannot inherit directly, so designating a child as beneficiary adds to the complication rather than removing it. Most life insurance policies and financial accounts don’t allow this, and if you do, the assets could end up in a trust administered by the state government until the beneficiary is an adult .

• Ability. When choosing beneficiaries, consider the person’s capabilities. If they are going to be entrusted with a significant financial asset, consider whether they have the experience and knowledge to manage it in the future.

• Circumstances. Although designating someone to receive a financial windfall may seem like a good thing, the recipients advantageafter all, take a moment to think about potential negative impact what a sudden increase in net worth could have on someone in terms of tax liability or eligibility for benefits. This is particularly important if you are naming multiple beneficiaries to share an asset: dividing it equally is the simplest thing to do, but it may not be the best solution. best thing to do if your designated beneficiaries have very different economic realities.

• Clarity. Although most financial accounts require a specific name for beneficiaries, if you have the option to be less specific, don’t do it. Naming “all my children” as beneficiaries, for example, becomes complicated if one of your children predeceases you, for example.

• Insurable interest. Many life insurance policies require your beneficiary to have an “insurable interest” in you: they must rely on you in some financial capacity. Naming a beneficiary who does not have an insurable interest can cause many complications, so make sure the desired beneficiary will be retained by your insurer.

Finally, keep in mind that in many cases you can name a charity as the beneficiary. Since beneficiary designations trump wills, this is an easy way to control who benefits from your estate after your death.