Beneficiaries are an important part of your estate plan, as these are the people or organizations that will ultimately benefit from your estate. Your specific beneficiaries often give a purpose and guidance for what you’re leaving behind. However, choosing a beneficiary is a very personal decision. If you have complicated family dynamics, this process might not be so cut and dry. Deciding who should be your beneficiary(ies) may feel like a lot of pressure. Here are some tips to keep in mind.

Understanding beneficiaries

Beneficiaries are often family members or close friends who rely on you for financial support. Some beneficiaries are named directly in policies or plans, while others are listed in your will. It’s important to note that benefits won't be paid to someone under the age of 18. If you want to provide for a minor, you must name a trustee to manage the account until the child reaches an age that you specify in the trust. Additionally, if you worry that a beneficiary can't responsibly manage money, you can establish a trust and trustee to invest and disburse funds on the beneficiary's behalf.

You can name a secondary beneficiary if your first beneficiary dies. Benefits generally go to your spouse first, then your children, parents, siblings and then your estate. It’s critical that your beneficiary information is thorough to ensure that your wishes are carried out without error or strain on your loved ones.

Considerations for special needs individuals

If you are naming an individual with special needs as a beneficiary in your estate plan, there are some important considerations you must make. If this individual relies on government assistance, they may become ineligible for aid after they receive your assets upon your death. You can establish a special needs trust to channel your assets or insurance death benefit without triggering laws that could mean a significant loss in financial support for the individual. This process can become complex, and it is best to consult with an estate planning attorney.

Naming a charity as a beneficiary

Many people name charities or other cause-related organizations as beneficiaries. If you support a nonprofit that you feel passionate about, you can name it as a primary or contingent beneficiary to receive all or a percentage of your assets, which can be an impactful way to leave a legacy.

Simplify the process

Certain accounts, such as pension plans, retirement accounts, and life insurance, ask you to name a beneficiary. On your death, proceeds from these accounts typically go directly to beneficiaries, thus bypassing probate—the legal process of distributing your assets after you pass, which can be slow and burdensome to your loved ones. Probate means that a court figures out how to distribute your funds and can lead to court fees, possible taxes, and payments that reduce the amount your family receives.

Make changes as necessary

It is important to keep your beneficiaries up to date as your life changes. Major life events are a good time to reevaluate beneficiaries and if you would like to change how your wealth is distributed. Here are some life events that should prompt you to review your beneficiaries:

• New marriage
• Divorce
• Loss of a loved one
• Birth or adoption of a child or grandchild

There are no hard-and-fast rules in naming beneficiaries. Who you name is completely up to you; however, understanding the role a beneficiary plays in your estate plan can help you feel more confident in your decisions.

If you have questions about beneficiaries, consult with your estate planning team to ensure that your intentions are carried out the way that you wish.

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