The benefits of naming beneficiaries

Take an important step towards feeling financially prepared by naming beneficiaries for your financial accounts and assets. While thinking about who you would want to inherit your assets when you pass away can be uncomfortable, it is nonetheless a vital part of financial planning. Learn what beneficiaries are, how to name them and the benefits of doing so.

What is a beneficiary?

A beneficiary is a person or entity you designate to receive your financial assets after you pass away. As the person designating beneficiaries, you are known as the benefactor. Beneficiaries can be named for bank and credit union accounts, brokerage accounts, retirement accounts, life insurance policies and more.

There are both primary and secondary/contingent beneficiaries. A primary beneficiary is the first person or entity who will receive the assets, while a secondary/contingent beneficiary only receives the assets if your primary beneficiary has passed away or is unable to be contacted. You may choose as many beneficiaries as you wish for each of your accounts and assets, assigning a percentage of the account’s value to each beneficiary.

You are allowed to choose any beneficiary you want, and it’s ultimately a personal decision. Common beneficiaries include a spouse, adult children and other close family members. Charitable organizations are also commonly listed as beneficiaries, and are often an appealing option those who are unmarried and don’t have kids.

How do I name beneficiaries?

Adding or changing beneficiaries is typically an easy process, once you’ve determined the people or entities you want to list. The exact steps will vary for each account you want to designate a beneficiary for, but the general process will remain the same. Sometimes, you will be prompted to enter beneficiary information upon opening a new account. Other times, you may need to contact the provider or locate an online form in order to set beneficiaries.

Be sure to fill out beneficiary documentation as completely and accurately as possible. The information you’ll want to have prepared include each beneficiary’s full name, address, birthdate, phone number and often a social security number or identification number. This will help ensure those chosen as your beneficiaries will receive the assets you intended to pass on to them without complications.

If your life circumstances change and you want to adjust who you have listed as a beneficiary, updating them is usually a simple process. The notable exception is an irrevocable beneficiary, who cannot be easily removed without their consent. Irrevocable beneficiaries are common in life insurance policies.

What are the benefits of naming beneficiaries?

Rest assured your wishes will be carried out

The process of naming beneficiaries for your financial accounts and assets gives you control over how your assets are distributed, even when you’re no longer around. With the ability to name beneficiaries for each account and divide up each account among multiple beneficiaries, you have tremendous control over how your assets are distributed.

You also gain peace of mind knowing your beneficiaries are set in place for when the time comes. Not having named beneficiaries introduces a much greater chance your assets will not be distributed the way you intended.

Avoid probate complications

If you don’t have beneficiaries named, complications can arise when it comes time to distribute your assets. Without named beneficiaries, some accounts have a default beneficiary, often a spouse. Otherwise, the assets of those accounts will become a part of your estate.

From there, a will can be used to inform the distribution and transfer process, if you created one. Even with a valid will, there may need to be probate proceedings, which is a complex legal process that is often long and costly. If you name beneficiaries, your assets can be transferred in a far more timely and cost-effective manner.

It’s easy and flexible

Unlike some aspects of estate planning, updating your beneficiary information is a simple process. In fact, it’s encouraged to regularly review whom you’ve selected as beneficiaries and to update accordingly. Common reasons to change beneficiaries include marriage, divorce, name changes, a beneficiary passing away, and the birth of a child. Even without a major life event, it’s a good habit to check every year or two, as you can update your beneficiaries at any time, for any reason.

As much as we want to avoid the topic, the distribution of your assets after death is inevitable. Having named beneficiaries helps to ease the burden on your loved ones as they navigate the legal processes involved when someone passes away. Naming beneficiaries also helps ensure your wishes are carried out. If you haven’t named beneficiaries or need to update previous beneficiaries, doing so is a simple process that can be done any time.

Check out related articles on financial preparedness:

• Why everyone needs a will and how to write one
• These are the financial documents you need to be prepared
• Important questions to ask your parents about their retirement or will