A beneficiary is a person or entity who is designated to receive assets or benefits in the event of the death of the owner of those assets or benefits. Beneficiaries can be named in a variety of legal documents, such as wills, trusts, retirement accounts, and life insurance policies. Here’s everything you need to know about beneficiaries:
- Types of Beneficiaries
There are several types of beneficiaries, including primary beneficiaries, contingent beneficiaries, and residual beneficiaries. Primary beneficiaries are the first in line to receive assets or benefits, while contingent beneficiaries are named as backup beneficiaries if the primary beneficiaries are unable to receive the assets or benefits. Residual beneficiaries receive any remaining assets or benefits after the primary and contingent beneficiaries have received their shares.
- Naming Beneficiaries
Naming beneficiaries is an important part of estate planning. It’s important to keep beneficiary designations up-to-date to ensure that assets or benefits are distributed according to your wishes. When naming beneficiaries, it’s important to be specific and to include their full legal names and contact information.
- Changing Beneficiaries
Beneficiary designations can be changed at any time, but it’s important to follow the proper procedures to ensure that the changes are legally binding. This may involve filling out a new beneficiary designation form or updating an existing document, such as a will or trust.
- Probate
Assets that have designated beneficiaries typically pass outside of probate, which is the legal process of distributing a deceased person’s assets. This means that the assets can be distributed to the beneficiaries more quickly and with less expense than assets that are subject to probate.
- Taxes
The tax implications of naming beneficiaries can vary depending on the type of asset and the relationship between the beneficiary and the deceased. For example, life insurance proceeds are generally tax-free to the beneficiary, while retirement account distributions may be subject to income tax. It’s important to consult with a tax professional to understand the tax implications of naming beneficiaries.
In conclusion, a beneficiary is a person or entity who is designated to receive assets or benefits in the event of the owner’s death. Beneficiaries can be named in a variety of legal documents, and it’s important to keep beneficiary designations up-to-date to ensure that assets are distributed according to your wishes. By understanding the basics of beneficiaries, you can make informed decisions when it comes to estate planning and asset distribution.