A beneficiary is the individual or individuals who have been designated to receive the death benefit. Beneficiaries may be either revocable or irrevocable. A person, or entity, that is named in a will, trust, insurance policy, or retirement plan, to receive a financial benefit or asset after the death of the person who created the document. In the case of a will, for example, a beneficiary is someone who is designated to inherit property or assets from the estate of the deceased person. In the case of an insurance policy, a beneficiary is a person or entity that is named to receive the death benefit in the event of the policyholder’s death. In the case of a retirement plan, such as a 401(k) or an IRA, a beneficiary is the person or entity that is named to receive the remaining balance in the account after the account holder’s death.
A beneficiary can be a single person, multiple people, an organization, or a trust. The person creating the legal document has the discretion to name any person or entity as a beneficiary, as long as it is not in violation of any laws or regulations. It is important to regularly review and update the beneficiaries named in legal documents, as circumstances and personal relationships may change over time. Failing to update the beneficiaries named in a legal document can result in unintended consequences and can lead to disputes among family members or other stakeholders.
Why Beneficiaries Are Important
Designating beneficiaries for your financial assets ensures that the people you choose will receive the money you intend for them. This gives you control over your financial legacy and provides clear instructions for everyone involved. Naming beneficiaries simplifies estate settlement and can minimize potential stress for your loved ones. For financial accounts like insurance policies or retirement accounts, beneficiary designations take precedence over changes to a will, ensuring that your wishes are honoured. Additionally, the names of beneficiaries on financial account documents remain private, unlike a will, which becomes public record and can expose heirs to public scrutiny.
How to Choose a Beneficiary
Designating beneficiaries for your important assets—such as property, insurance policies, retirement accounts, brokerage accounts, and bank accounts—is essential. Here’s how to select your beneficiaries:
- Consider Your Relationships: Reflect on your connections with family members and identify those who may need financial support. Don’t forget to include family pets who may require protection.
- Think Beyond Family: Evaluate individuals outside your family whom you wish to care for or reward for their loyalty and support over the years.
- Support Organizations: Consider the organizations you’ve supported over time and determine if you want to provide them with financial assistance.
What is a Contingent Beneficiary?
A contingent beneficiary is someone who receives benefits if the primary beneficiary has died at or before the time the benefit needs to be paid. By thoughtfully choosing your beneficiaries, you ensure that your assets are distributed according to your wishes and support the people and causes important to you.
Can You Change Beneficiaries?
In most cases, you can change the beneficiaries on a life insurance policy or other financial accounts at any time. This process is typically straightforward, but it’s important to remember to do it. Contact your employer, financial professional, or financial services company to learn how.
- Revocable: means that you can change who your beneficiary is anytime without getting their consent
- Irrevocable: on the other hand, means that if you want to change your beneficiary you need their consent to do so
- In Quebec, if you name your legal spouse as your beneficiary, they are automatically irrevocable unless you specify otherwise or divorce
When to Update Your Beneficiaries
Beneficiary changes are often overlooked after significant life events such as divorce, remarriage, or the death of a loved one who is named as a beneficiary.
- Divorce: In some jurisdictions, divorce may revoke a designated spouse’s right to receive benefits. You may need to update the relationship status from “spouse” to “ex-spouse” if you still want them to remain a beneficiary.
- Annual Review: Use your employer’s annual benefits enrollment period to review and update your beneficiaries. If you don’t have employer benefits, choose a memorable date each year, like your birthday or a holiday, to check your accounts and policies.
Special Circumstances for Changing Beneficiaries
In some situations, such as specific terms of a divorce or an irrevocable designation, you may need the current beneficiary’s consent to make changes. Similarly, if you have transferred ownership of an account or policy to someone else, you cannot change the beneficiary. Generally, you, your financial professional, or your attorney will know if these special circumstances apply to you.
Conclusion
If you want to ensure your financial assets are distributed according to your wishes after you’re gone, choosing beneficiaries for your accounts should be a priority. By designating beneficiaries, you can guarantee that your property ends up in the right hands.
