What is a beneficiary? That is a question you must know the answer to if you are planning your estate. Failing to come up with a list of beneficiaries for your estate could lead to an outcome that greatly disadvantages the people you care about the most.
In this article, we will go in-depth on the topic of beneficiaries. We will discuss what beneficiaries are and how to choose them. We will also get into the potential complications of naming minors as beneficiaries of your estate.
You can continue to take good care of your loved ones even after you have passed away. Understanding the concept of beneficiaries will help you accomplish that.
Defining a Beneficiary
Before we jump into any complex topics, let’s first take the time to define what a beneficiary is.
A beneficiary is a party who will receive a benefit from your estate. You will need to name specific beneficiaries for wills, life insurance policies, retirement plans, bank accounts, and any other financial products designed to convey assets from one party to another.
To put it simply, a beneficiary is a party that will receive something from your estate once you fulfill certain conditions.
Most of the time, people choose their loved ones as their beneficiaries.
You may choose your spouse, parents, children, siblings, and any other relatives as your beneficiaries. In New York State, you can name about anyone as the beneficiary of your estate. If you are choosing beneficiaries for an insurance plan, check with your insurer first. They may have rules regarding who you can name as a beneficiary, so clear things up ahead of time.
Notably, you are not limited to choosing only people as beneficiaries of your estate. You can choose a charity or another organization to receive proceeds from your estate when you pass away.
Naming beneficiaries is a crucial part of estate planning. Of course, you are the one best equipped to decide who your beneficiaries should be, but there is nothing wrong with seeking the guidance of an estate planning attorney. They can help you identify and list beneficiaries to finish those important tasks faster.
What Are the Consequences of Not Choosing Any Beneficiaries?
Not everyone prioritizes estate planning. Some people avoid that important task because they still feel they are too young for it. Others may not get into estate planning because they lack time.
Regardless of why you opted against settling your estate ahead of time, that decision could have serious consequences. For example, if your primary means of supporting your loved ones after your passing is a life insurance policy, then you likely have beneficiaries already. On the other hand, if your assets mainly consist of the money in your bank accounts and your possessions, things could get messy for your loved ones after your passing.
The assets of a deceased individual with no last will and testament, also known as an intestate individual, will be distributed in a specific way. Learn more about how they distribute those assets by continuing below.
How Assets Are Distributed for Intestate Decedents
First, your spouse will inherit all your assets if you have no kids. When you have kids but no spouse, your assets will go to your children.
Things get a bit more complicated if both the spouse and children are eligible to receive the assets. According to New York State law, the spouse will inherit the first $50,000 and half of the balance in that scenario. Everything else will go to the children. Your grandchildren can also assume the role of your children in this particular situation.
If the spouse, children, and grandchildren are unable to receive the assets, they will go to the parents of the decedent. Siblings are next in line to receive the benefits if the parents are no longer around. The deceased’s estate will become the property of New York State if the decedent has no surviving family members.
The main consequence of dying intestate is losing control over how they distribute your assets. For example, you may have a strained relationship with your spouse and are in the process of seeking a divorce when you were involved in an untimely accident. Because you died intestate, they now have a legitimate claim to your estate.
Avoid that nightmare scenario by choosing your beneficiaries.
What Are the Types of Beneficiaries?
When you finally select beneficiaries for your estate, you will discover different types of beneficiaries. To be more specific, benefactors can name both primary and contingent beneficiaries.
So, what are primary and contingent beneficiaries? Let’s differentiate those two types of beneficiaries below.
Primary Beneficiary
As the name implies, a primary beneficiary is first in line to receive benefits from your estate after your passing. As we noted earlier, your primary beneficiary can be a person or an organization.
It is important to note here that you can name more than one primary beneficiary. Naming more than one primary beneficiary is even recommended if you want more control over the distribution of your assets.
If you decide to name multiple primary beneficiaries for your estate, indicate how your assets will become divided among them. Indicate which assets go to which primary beneficiaries to prevent potential disputes.
Contingent Beneficiary
A contingent beneficiary is an individual or organization that becomes eligible to receive benefits from an estate if the primary beneficiaries are deceased or cannot be located. According to the Legal Information Institute, contingent beneficiaries may also become eligible to receive benefits if they meet specific conditions.
Your young children are prime candidates to become contingent beneficiaries of your estate. You can set things up as the benefactor, so your spouse would be the primary beneficiary, and your children would be the contingent beneficiaries. Pondering the possibility that your spouse may not be around to receive the assets in your estate is difficult, but it is good to be prepared for it, nonetheless.
Do not confuse contingent beneficiaries with primary beneficiaries that you want to receive lesser benefits from your estate. If you want multiple people or parties to get something from your estate no matter what, then you should name all of them as your primary beneficiaries.
There is also something known as a remote contingent beneficiary. In the unlikely event that all of your primary and contingent beneficiaries cannot receive assets from your estate after your passing, your remote contingent beneficiary is the party that will inherit your estate.
Remote contingent beneficiaries can be anyone. However, people tend to name charities as their remote contingent beneficiaries to ensure their assets will go to people in need.
Can a Minor Receive Assets Directly from Your Estate?
Benefactors are allowed to name their children as their beneficiaries. However, New York State does not allow individuals under eighteen to assume control of money or property left to them by a deceased individual.
So, how will your children benefit from your estate if they are still under eighteen at the time of your passing? The answer to that question depends on how you managed your estate.
How Assets Become Distributed if You Have a Plan in Place
If you want to exert control over how your assets become distributed to your children, it would be wise to set up a trust ahead of time. Put assets in that trust and name a trustee who will oversee it until your child reaches adulthood. By creating a trust, you can guarantee that your children will get their fair share of your estate, even if they have to wait a while to do so.
Consider creating a revocable living trust if your preferred beneficiaries are still minors. Doing so will allow you to change your list of beneficiaries based on how your relationships with your children develop.
How Assets Become Distributed if You Have No Plan in Place
What happens if you do not have a trust or some other legal mechanism that will control how your assets will go to your young children? In a scenario such as that, New York State will name a legal guardian who will watch over your child’s assets.
Generally speaking, courts will name someone close to the child as their guardian. It could be their parent, grandparent, or some other close relative. Courts will rarely choose non-relatives to serve as guardians. Still, they may do so if the other parties are deemed unfit to act in that capacity.
Although the guardian is legally required to act in the best interests of your children, there is still no guarantee that they will manage things that way. If you do not want the courts to decide how your children’s assets become managed, you should reach out to an attorney and start estate planning immediately.
How Do You Choose Beneficiaries?
It is now time to discuss the process of selecting beneficiaries. This task may seem simple enough, but you should consider all the factors that could come into play.
Naming your family members as your beneficiaries is a good idea. Your spouse and your parents are good candidates to be primary beneficiaries. Remember to set up trusts for minors to facilitate the smoother transition of your assets.
If you have a relative with special needs, naming them as a primary beneficiary of your estate could produce the unintended consequence of making them ineligible to receive certain government benefits. To prevent that from happening, consider setting up a special needs trust that can provide for them long-term.
When selecting charities or organizations, it is best to go with the ones with good track records. That way, you can be certain that your assets will go to worthy causes.
What Should I Do After Choosing My Beneficiaries?
Do you already have your list of primary and contingent beneficiaries? Once you have put that list together, you now have to include them in your will, insurance policy, and any other documents that will determine how your estate is managed after your passing.
When listing your beneficiaries, you should be thorough with the information you provide. Include all the important details that will make it easier for the courts or insurers to track down your beneficiaries. The details you should provide include your chosen beneficiary’s name, address, contact details, date of birth, and even their Social Security Number if you have it.
Provide whatever information you can so your assets go into the right hands.
You should do the same thing if you are planning to name a charity or organization as one of your beneficiaries. Reach out to the organization and ask them for their identifying information.
Can I Change My Beneficiaries?
Circumstances change over time. You and your spouse may end up getting divorced, you may grow estranged from your parents, and conflicts may drive wedges between you and family members you were previously close to. Even the organizations you believed to be doing good work could be proven otherwise.
Previously, you may have listed those parties as beneficiaries of your estate. Can you still remove them as beneficiaries now?
You can change your beneficiaries, but the way to do so varies on the mechanism you are using to convey your assets.
With a life insurance policy, you can contact your agent and ask them to help you make changes. Trusts can be changed easily if they are revocable. Irrevocable trusts are harder to alter because you have to get consent from your beneficiaries. If you are planning to change a will, it may be easier to simply revoke your old one and create a new document in its place.
Selecting beneficiaries for your estate requires careful consideration. While you ponder your potential beneficiaries, we at the Alber Law Group will work on setting up your estate. Contact us today and get started on your estate planning.
