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Understanding Beneficiaries: A Guide by O1ne Mortgage

You work hard to achieve financial success, but have you considered what happens to your assets after you’re gone? Choosing a beneficiary ensures your hard-earned money goes to the right place. A beneficiary is a person or entity you designate to receive proceeds from an insurance policy or inherit money or other assets after your death. Beneficiaries can be individuals or legal entities, such as trusts or corporations.

How Do Beneficiaries Work?

Beneficiaries are individuals or entities who receive benefits from you after your death. They can be listed in your will, as well as on your financial accounts and life insurance policies. After you pass away, your beneficiaries may receive:

• The payout from your life insurance policy
• The assets in your retirement account
• The assets in your brokerage account
• Other assets named in your will

Choosing a beneficiary is crucial for estate planning because it ensures your assets are distributed according to your wishes. Without a named beneficiary, the court will decide who gets your assets through a process known as probate, which can take eight to 12 months or more.

Types of Beneficiaries

There are different types of beneficiaries to consider:

• Primary beneficiary: The first in line to receive the assets or benefits after your death.
• Contingent beneficiary: An alternate who receives the assets if the primary beneficiary is unable to take ownership.
• Multiple beneficiaries: You can split assets or benefits among two or more beneficiaries, specifying the percentage or items each will receive.

When choosing a beneficiary, consider your intentions. For example, if your life insurance policy is meant to support your family business, the business entity should be the beneficiary. If it’s to help your family manage without your income, your spouse should be the beneficiary. In community property states, your spouse is the default primary beneficiary unless they consent otherwise.

How to Designate a Beneficiary

The process of naming a beneficiary depends on the specific financial account or insurance policy. Here are some general steps to follow:

1. Gather Information: Collect details about each financial account or life insurance policy, including account or policy numbers and contact information for the financial institution or insurance company.
2. Review Beneficiary Options: Visit the website or contact your insurance carrier or financial institution to view or obtain beneficiary designation forms.
3. Consider Your Intentions: Decide whom to designate as primary and contingent beneficiaries, and determine the percentage each should receive if naming multiple beneficiaries.
4. Complete the Necessary Paperwork: Follow the directions for filling out the beneficiary designation form, which may be done online or on paper. Include the beneficiary’s full legal name and other required details.
5. Keep Beneficiary Designations up to Date: Regularly review and update your beneficiary designations to reflect any life changes, such as marriage, divorce, or having children.

Remember, beneficiary forms take precedence over your will for certain accounts, such as life insurance policies, retirement plans, IRAs, and annuities. Ensure your beneficiary designations are current to avoid conflicts.

The Bottom Line

Choosing beneficiaries for your financial accounts, life insurance policies, and other assets is a vital part of estate planning. It ensures your wishes are honored and your loved ones are financially secure after your death. Regularly reviewing your beneficiary designations can be part of an annual financial checkup.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you secure your financial future with confidence.

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