Planning for your future and the welfare of your loved ones is essential. That’s why it is important to have an estate plan in place that includes designating beneficiaries – the people or entities who will receive your assets after your death. However, many people make the mistake of assuming that selecting a beneficiary alone is sufficient. It’s also important to understand the difference between primary and contingent beneficiaries and how they affect your estate plan.
A primary beneficiary is first in line to receive your assets after your death. You can choose one or several primary beneficiaries, and they can be individuals, charities, or even trusts. If you have multiple primary beneficiaries, you need to specify how the assets will be divided among them. You can set a specific distribution or percentages, and in some cases, state laws may dictate how assets are distributed.
A contingent beneficiary is a backup beneficiary who receives your assets if the primary beneficiary is no longer available or cannot take possession of the assets. This can happen if the primary beneficiary predeceases you, disclaims the inheritance, or cannot be located. If you don’t have a contingent beneficiary, the assets will go to your estate, which can be a lengthy and costly process for your loved ones. It is important that you name at least one contingent beneficiary to avoid this scenario.
Choosing Between Primary and Contingent Beneficiaries
Choosing between primary and contingent beneficiaries depends on your individual circumstance. If you have a specific person or charity that you want to receive your assets, designate them as the primary beneficiary. It is also important to name at least one contingent beneficiary in case something happens to your primary beneficiary.
However, if you have more complex estate planning needs, you may want to consider setting up a trust or other legal entity that can act as a beneficiary. This can offer additional benefits and protections than a simple beneficiary designation. Speak with a financial advisor or attorney who can help you determine the best option for your individual needs.
Updating Your Beneficiary Designations
It is important to periodically review and update your beneficiary designations to ensure that they are accurate and reflective of your current wishes. Major life events, such as marriage, divorce, or the birth of a child, can impact your beneficiary choices. It’s also important to check that your designated beneficiaries are in line with your overall estate plan objectives.
Can beneficiaries be changed?
In most cases, yes, beneficiaries can be changed. It is recommended to update beneficiaries’ designation regularly, especially after significant life changes like marriage, divorce, birth, or death. However, it is crucial to ensure that the estate planning documents are updated accordingly.
Choosing between primary and contingent beneficiaries is an important decision that can ultimately affect the distribution of your assets and the welfare of your loved ones. By understanding the key differences between the two, you can make more enlightened choices about who will receive your assets after your death. Don’t forget to review and update your designations periodically to ensure that they are current and reflective of your wishes. Speak with a financial advisor or attorney who can guide you through the estate planning process and help you weigh the benefits and drawbacks of different beneficiary scenarios.