A beneficiary is an individual or an organization appointed to obtain assets or property from someone’s estate following their passing. Naming a beneficiary helps ensure that the assets you leave behind are dispersed according to your wishes and that your loved ones or chosen organizations receive the intended advantages.
Understanding the types of beneficiaries is essential when determining who will receive your estate and assets after you are gone.
Types of beneficiaries
Three types of beneficiaries can be named in your estate plan. They are as follows:
- Primary beneficiary. This is the main recipient of your estate and assets in a will. Typically someone who would suffer financially in the event of the death. In other words, with you gone, your spouse may fall on hard times. Naming them as your beneficiary will help relieve some of this burden.
- Contingent beneficiary. This is the individual(s) or organization(s) who only inherit your estate and assets if the primary beneficiary is unable or unwilling to do so. Naming a contingent beneficiary provides a backup strategy for transferring your assets. Also, you can name more than one.
- Charitable beneficiary. Educational and religious institutions are among the nonprofit organizations or institutions that receive assets from your estate plan. Leaving assets to an organization that is meaningful to you is a good way to support them, plus there are tax benefits to be had.
Age, relationship, financial need and tax considerations are all factors to consider when naming beneficiaries in an estate plan. The age of your beneficiary matters, especially if they are under the age of eighteen. A younger beneficiary will need a guardian appointed. You might also put your assets into a trust for them that they can access once they turn twenty-one. When you are ready to choose your beneficiaries, seek guidance from someone who can help you make the right decisions.
