When thinking about your financial goals, it’s easy to get caught up in big dreams—a new home, an exciting vacation, or even a comfortable retirement. However, you don’t get anywhere without a plan and a crucial part of your plan should be naming beneficiaries for your assets. If you pass unexpectedly, this simple step can spare your loved ones from legal hassles and frustration.

What Is a Beneficiary?

A beneficiary is the person or entity you name to receive your assets when you pass away. This can be anyone: a family member, a trust, a charity, or a friend. Unlike heirs, who inherit based on legal entitlements, beneficiaries receive property because it is specifically gifted to them. For example, the beneficiary named in a life insurance policy receives the death benefit. Because the beneficiary is named right there on the plan, there is no need for a lengthy court proceeding to determine who inherits the policy. They simply present the death certificate to the insurance company and receive the payment.

Should You Name a Beneficiary?

According to CNBC, it’s essential to name beneficiaries for life insurance policies, retirement funds, bank accounts, and other assets. Without it, your estate might spend months or years in probate. While the courts decide how to divide your assets, your loved ones will go without the financial support you left them.

Who Can Be a Beneficiary?

You can name almost anyone as a beneficiary. Here are some common choices:

  • Individuals: Family members, friends, or other loved ones.
  • Charities: Organizations you support.
  • Trusts: An Entity created by you to manage your property according to your wishes but flexible enough to make the best decision in the future with the information then available.

Some states have rules requiring certain beneficiaries, such as a spouse. Speaking with a knowledgeable estate planning attorney is important so your choices align with legal requirements. Call us today if you have questions about your plan.

What to Consider

Choosing a beneficiary is a significant decision that shouldn’t be rushed. Here are some factors to consider:

  • Relationships: Think about who you want to benefit from your assets after you’re gone.
  • Financial Needs: Consider the financial stability of the people you consider naming.
  • Tax Implications: Different beneficiaries might face different tax burdens.
  • Age and Capability: Naming minors or individuals with disabilities can complicate things. In such cases, setting up a trust might be a better option.

The biggest consideration is whether or not your plan is flexible enough to handle whatever happens in the future. Sometimes it is best to name a trust as your beneficiary, then put terms in the trust that provide for multiple potential future scenarios.

How to Designate

Designating a beneficiary is usually straightforward. First, gather the necessary information, including their full legal name, relationship, address, and possibly Social Security number.

Next, contact the institutions that hold your accounts. Each provider will have its own process for naming beneficiaries. Most of the time, you can do this online or through a written request rather than in person.

Lastly, if given the opportunity, name a secondary or contingent beneficiary (i.e., someone that receives your asset if you first choice, or primary beneficiary, isn’t available). We never know what is going to happen in the future and having a back up plan is important.

When Should You Update?

Your life circumstances change, and so should your beneficiary designations. It’s important to update them when a major life event occurs. Changing your marital status, job status, or having a child are all good reasons to reevaluate your plan.

What Happens If You Don’t Name a Beneficiary?

If you don’t name a beneficiary, your assets could be tied up in probate. This means your loved ones might have to wait months or even years to access the funds you intended for them. In the case of life insurance, if no beneficiary is named, the payout will go to your estate and be distributed according to state law, which might not align with your wishes.

Naming a beneficiary is a must to spare your loved ones undue stress and carry out your wishes. Book a call with us today for help naming beneficiaries and creating an estate plan matching your needs.

Key Takeaways

  • Ensure Your Wishes are Honored: Naming a beneficiary guarantees your assets are distributed according to your wishes.
  • Avoid Probate: Proper beneficiary designations can help your loved ones avoid lengthy and costly probate processes.
  • Flexible Beneficiary Designations: You can name almost anyone as a beneficiary, including individuals, charities, and trusts.
  • Update Your Designations: Regularly updating your beneficiaries ensures your designations reflect your current wishes and circumstances.

Our attorneys are licensed in Missouri and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.

Reference: CNBC (Feb. 23, 2024) “Naming a beneficiary can save your loved ones a lot of heartache — here’s how to do it”