What is a beneficiary?

Three generation family walking outdoors after naming the children a beneficiary

The term beneficiary is often used when discussing wills, insurance, finances, and other more complicated legal matters. But do you know what it actually means? To put it simply, a beneficiary is the person or place that receives your money or property in the event of your death. It’s an important decision and requires careful thought and consideration when making your selection. While it’s true that no one likes to think about the event of their death, consider this: choosing a beneficiary is another way you can help take care of your loved ones.

Frequently Asked Questions About Beneficiaries:

What do you need beneficiaries for?

Beneficiaries are listed for life insurance policies, wills, retirement accounts like 401(k)s, IRAs, and annuities.

For example, a life insurance beneficiary receives the money from your life insurance policy. This payment can help your loved ones pay for your funeral, or it could be your way of leaving a financial gift.

In a will, a beneficiary could be the person you choose to take over the family farm or who gets your house in the event of your death.

Who should you choose as your beneficiary?

A beneficiary can be your spouse, kids, grandkids, a charity, or even a trust.

Ask yourself: who do you want to receive the money from your life insurance policy in the event of your death? Who do you want to have the house you raised your children in? These decisions can be hard. But if you view them from the perspective that you’re looking out for your loved ones’ best interest, you can see the importance of the decisions at hand.

Do you want to ensure your grandchildren can build a house one day on your farm land? List them as the beneficiary in your will.

Does your spouse need your income to live comfortably? The income from your life insurance policy could provide this. In many states, your spouse is the automatic beneficiary on things like retirement accounts and life insurance policies. But it’s always a good idea to specifically name the person you want to receive the benefits to be safe.

When is it best to use a trust?

A trust can be listed as a beneficiary to keep your assets until a later time. The trust agreement allows a third party, like a bank, to hold your money or assets on behalf of your beneficiary until they can accept it based on the terms you set.

For example, you may wish to leave all assets to a trust that names all grandchildren – present and future – as beneficiaries. You decide that your grandchildren need to be 18 years of age before they can draw from the trust, and the amount they can draw can be capped at a certain amount each year. The terms of the trust can help make sure your wishes are met.

If your chosen loved ones are minors, a trust is a safe way to help protect your assets until they are legally able to receive them. Trusts can also help your loved ones avoid probate court, which is a court that deals with the distribution of your assets in the event of your death.

To set up a trust, you’ll need to work with an attorney. While attorney’s fees can add up, their help setting up a trust that can save your loved ones money on taxes over the long haul may be well worth the extra costs.

Can you have more than one beneficiary?

Yes! You could list your spouse and all of your children. Some plans let you have as many as 50 beneficiaries.

In many plans, including some 401ks, you can define a specific percentage for each of your beneficiaries to receive. For example, your spouse could get 50% and your two children could each get 25%. Or you could leave 50% to a charity that’s close to your heart and give the remaining 50% to a trust in your grandkids’ names.

In some cases, you may want to make the distinction between primary and contingent beneficiaries. A primary beneficiary is the person who would get your assets in the event of your death. A contingent beneficiary would only receive benefits in the event of the primary’s death.

Can you change your beneficiary?

Yes, and there are many times that you should. As new people come into your life or new things become important to you, you may want to change your beneficiary. After all, you can’t forget to include surprise grandchild number 5!

Other times, you may want to update your beneficiaries when you’re buying/selling a home, if you get married or divorced, or if your assets increase. (Winning the lottery is possible, after all!)

How do you update your beneficiary?

If you’re purchasing life insurance or setting up your will for the first time, you will name your beneficiaries then. If you already have a life insurance policy, retirement account, or will, you’ll need to update your beneficiaries. There are several ways you can do this:

  • To update your life insurance beneficiary, you need to fill out a Change of Beneficiary form through your life insurance provider. You can often find these forms on your provider’s website. You can also call your life insurance provider and talk to an agent/producer about updating your beneficiary.
  • To update the beneficiary in your will, you have two options. You can create a new will or add a codicil. A codicil is simply an adjustment to your will. Both options would need to be dated, signed by you, and signed by witnesses, just like your original will. If you used a will preparation service, you can easily update your beneficiaries through the service. If you used an attorney, contact them to help you update your will as needed.
  • To update your retirement accounts, you’ll need to talk to your plan administrator or fill out a Change of Beneficiary form. This form can usually be found on your account provider’s website.

What information will I need to name or update a beneficiary?

If your beneficiary is a person:

  1. Full legal name of beneficiary
  2. His/her social security number
  3. Mailing address, phone number, and/or email address

If your beneficiary is a charity:

  1. Confirm that the charity will accept proceeds of a life insurance policy or retirement plan as a donation
  2. Full name of charity
  3. Address
  4. Tax ID number – you can find this by looking at the IRS’s Tax Exempt Organization search

Why are beneficiary’s important?

Planning for things that happen after your death can be overwhelming. But selecting your beneficiary carefully and intentionally is a key part of estate planning that shouldn’t be overlooked. Consider what’s important to you, what you want for your loved ones, and what you’d like your legacy to be. That way, when you choose your beneficiary, you can be confident that things may be taken care of on your terms even after you’re no longer living.

*Mutual of Omaha and its representatives do not provide tax and legal advice, and the information provided herein is general in nature and should not be considered tax and legal advice.

*Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

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