Selecting who will receive your retirement assets or the death benefit from an insurance policy is an important decision that comes with owning financial products.
A beneficiary is a person or entity that you name to receive the benefits from your life insurance or retirement accounts. For non-retirement accounts, it is called a transfer on death (TOD) or a payable on death (POD).
Once you pass away, the beneficiary designation cannot be changed or updated. Also, beneficiary designations override a will or other estate planning documents, so it is important to update them as life changes. Some common situations that should prompt you to reevaluate your beneficiaries include getting married, having children, the death of a loved one, or getting divorced.
A major benefit to appropriately designating beneficiaries is that it allows for your assets to be easily transferred without going through probate. Probate is a court process that can be time-consuming and costly. Taking a few minutes to review and designate your beneficiaries now can help alleviate the stress of navigating legal proceedings while your loved ones are grieving.
Primary vs Contingent
You can name both primary and contingent beneficiaries on your accounts. A primary beneficiary is a person or entity that is first in line to receive your benefit. After choosing a primary beneficiary, your next step is to select contingent beneficiaries. It is important to name contingent beneficiaries in the event that none of the primary beneficiaries survive you or if they choose to disclaim the assets. Most married couples list their spouse as their primary beneficiary and their children, a niece/nephew, a trust, or anyone else as their contingent beneficiaries.
Per Capita vs Per Stirpes
Once your beneficiary designations are assigned, the next step is choosing between per stirpes or per capita. These two legal terms have to do with how your assets are distributed. If you make no selection, per capita is generally the default option. Choosing per capita allows you to be sure that your money is only going to your named primary beneficiaries. If one of your primary beneficiaries dies before you, then their share of the assets would be distributed equally to the other beneficiaries who are still alive. Choosing per stirpes means that if who you selected as your primary beneficiary dies before you, then their share will pass to their descendants.
Related: 6 Must-Have Estate Planning Elements
If you have more questions about beneficiary designations, you’re welcome to schedule a complimentary consultation with our team of financial advisors.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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