An essential part of estate planning is designating beneficiaries for your life insurance policy, 401(k), and other financial accounts.  A beneficiary is a person who receives someone’s assets upon their death.

There is no “correct choice” when choosing the beneficiaries who will inherit from you.  It’s a personal decision.  What must be handled “properly,” however, is the process of naming beneficiaries so that your loved ones can inherit what you desire for them.  Let’s look at beneficiary designations in a bit more detail.

Why You Should Have Beneficiaries

A last will and testament doesn’t provide for passing on many financial products, such as investments and retirement plans.  Furthermore, if you have created a living trust, transferring ownership of some of these kinds of accounts to the trust is not appropriate.  Leaving behind those assets requires designating beneficiaries for each specific account.  The people you choose will assume ownership of the accounts when you die and can use the funds however they want.

Although designating beneficiaries isn’t mandatory, deciding not to name them can create issues for your family.  Instead of having immediate access to the funds, your loved ones will have to go through probate for the court to authorize the distribution of your assets.

The Maricopa County probate process can be time-consuming and costly.  It can prevent your family from using the money they need to pay for necessary expenses immediately.  Disputes can also arise if they disagree over who is entitled to the assets.

Who Can Be a Beneficiary?

Choosing a primary and at least one contingent beneficiary is crucial when you pick your beneficiaries.  A primary beneficiary is a person who will receive the asset upon your death.  A contingent beneficiary is a person second in line to receive the asset if the primary beneficiary dies before you do.

You can designate anyone as a beneficiary with some exceptions.  Depending on who you pick, creating separate legal documents or setting up additional accounts might be necessary.

The most common parties designated as beneficiaries include:

  • Immediate family – A spouse, child, or sibling is an excellent choice for a beneficiary.  You can name multiple beneficiaries and instruct how the asset should be divided among the parties.
  • Minor – You can name a minor child as your beneficiary.  However, you must appoint a legal guardian to manage the funds if you pass away while the child is under 18.  Typically, minors can’t control financial accounts until they are legal adults.  You should carefully consider whether or not naming a minor as a beneficiary is the best option for your circumstances.
  • Trust – Your attorney may advise making your trust the beneficiary of certain accounts, especially if they are to be managed on behalf of a minor child or a person with special needs. This option may not be appropriate, especially for retirement accounts.

How to Designate Beneficiaries

If you have a retirement account, life insurance policy, or investments through a financial advisor, ask for a beneficiary designation form to complete.  Banks can provide the form for checking and savings accounts.  You can talk to your employer about adding beneficiaries to your 401(k) or profit-sharing plan.

Beneficiary designations often require the person’s full legal name and other details, such as:

  • Their relationship to you
  • Social Security number
  • Mailing address
  • Phone number
  • Date of birth

Providing up-to-date information is crucial to avoid unnecessary delays while the insurance company or financial service company tries to locate your beneficiaries.  Ensure all the details are accurate and make changes whenever necessary.  You must update the form immediately if your chosen beneficiary dies.

Contact a Phoenix, Arizona Trust and Estate Lawyer Today

Naming beneficiaries is one of the most important decisions you will make.  Protecting your assets and securing your family’s financial future is essential during estate planning.

Reach out to our experienced Phoenix, Arizona trust and estate lawyers immediately to learn more about beneficiary designations.  We can review your assets and help you with the beneficiary forms. Contact us at (602) 274-4400 to schedule a complimentary consultation.