Understanding Named Beneficiaries: What You Need to Know

by Knowledge Resources |

When it comes to estate planning, one important aspect to consider is the designation of named beneficiaries. A named beneficiary is a person or entity that you designate to receive the assets of your estate after your death. 

What is a Named Beneficiary?

A named beneficiary is a person or entity that you name to receive your assets upon your death. This designation is typically made on a life insurance policy, a retirement account, or a trust. You can name one or more beneficiaries, and you can also designate them to receive different percentages of your assets.

How Does Naming a Beneficiary Work?

When you name a beneficiary, the assets in the account or policy will pass directly to that person or entity upon your death. This means that the assets will bypass your estate and any probate proceedings. This is important because it can save time and money for your loved ones and ensures that your assets go to the people or entities you intended.

For example, if you name your spouse as the beneficiary of your retirement account, your spouse will receive the assets in that account after your death. This will happen regardless of what your will says or what your other beneficiaries want.

Why is Naming a Beneficiary Important?

Naming a beneficiary is important for several reasons. First, it allows you to ensure that your assets go to the people or entities you want them to go to. This can help you avoid disputes between family members or other interested parties.

Second, naming a beneficiary can help you avoid probate. Probate is the legal process of administering an estate after someone’s death. It can be time-consuming and expensive, and it can tie up your assets for months or even years. By naming a beneficiary, you can avoid probate and ensure that your loved ones receive your assets in a timely manner.

Third, naming a beneficiary can help you avoid estate taxes. When you name a beneficiary, the assets in the account or policy pass directly to that person or entity. This means that the assets are not included in your taxable estate, which can help you reduce or avoid estate taxes.

How to Name a Beneficiary

Naming a beneficiary is a straightforward process. To name a beneficiary, you will need to fill out a beneficiary designation form, which is typically provided by the financial institution or insurance company that holds the account or policy. On the form, you will need to provide the name and contact information of the beneficiary, as well as the percentage of the assets that you want them to receive.

It’s important to review your beneficiary designations periodically to ensure that they still reflect your wishes. Life changes such as marriage, divorce, or the birth of a child can affect your estate plan, so it’s a good idea to review your plan periodically to ensure that it still meets your needs.

Conclusion

Naming a beneficiary is an important part of estate planning. It allows you to ensure that your assets go to the people or entities you want them to go to, it can help you avoid probate, and it can help you reduce or avoid estate taxes. By taking the time to name your beneficiaries and review your plan periodically, you can ensure that your loved ones are taken care of after your death.

 

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