Certain assets like annuities, life insurance, IRAs, and employer-sponsored retirement plans (401[k], 403[b], etc.), allow you to name a designated beneficiary—that is, the person who will receive that asset when you pass away. The financial organization where the asset is held provides you with a form on which you write your choice for designated beneficiary. When you pass away, the asset is automatically distributed to the named beneficiary, thereby avoiding the long, tedious, and expensive probate process.
It’s important to keep in mind that beneficiary designations take precedence over any other instructions you provide in a will or trust. So, if you leave a retirement account to your cousin in your will, but on the designation of beneficiary form for that retirement account you indicated your brother, your brother will ultimately receive the funds from that retirement account.
There are two kinds of beneficiary designations: primary beneficiary and secondary beneficiary. Primary beneficiaries are your first choice for a beneficiary. If you pass away, that person will get the asset. In some cases, you can have multiple primary beneficiaries. For example, on the same account you might choose to leave the asset to all three of your siblings, and designate that each receive 33.3% of the asset. A contingent beneficiary is basically a backup beneficiary. So, if there are no living primary beneficiaries when you pass away, the contingent beneficiary claims the asset.
Beneficiary designations are an important component of your estate plan. You should discuss those with your estate planning attorney as they’re a key part of how your assets will be distributed to your loved ones. We can help you develop an estate plan with the tools and strategies that work best for your goals and your unique situation. Contact us at 617.299.6976 or firstname.lastname@example.org, and we’ll make a free, no-obligation initial consultation appointment.