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APRIL 2023

Why do you need a beneficiary?

When someone dies without naming a beneficiary — or leaving a will — their loved ones inherit a legal tangle. But what exactly is a beneficiary? Are there special rules for choosing one? And when do you need to name a beneficiary?

Doing the right thing for yourself and your family can be confusing — but it doesn’t have to be. Here’s what you need to know to choose your beneficiary, or beneficiaries, with confidence.

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What is a beneficiary?

A beneficiary is a person or organization you choose to inherit your wealth when you die. Your wealth can include your home, investments, cars and other possessions, from antiques to baseball cards. You name beneficiaries in a legal document — such as a will, trust, life insurance policy, annuity or retirement account.

Here are some examples of the people and organizations you can name as your beneficiary:

• A person (or multiple people)
• The trustee of a trust you’ve set up
• A charity or nonprofit
• A minor (child under 18 years of age)
• Your estate (in the case of a life insurance policy)

Why you need a beneficiary.

You work hard for your money. And you want to know your family will be secure financially when you’re gone. That’s the most important reason you need to name a beneficiary — or beneficiaries: to make sure your wealth ends up in your loved ones’ hands. Here are some others:

• Clarity — Grief is stressful. When things aren’t clear, the confusion can result in family strife and resentment. Naming beneficiaries makes your wishes crystal clear. And in most cases, legally protected. It also keeps the peace among your relatives.
• Speed — When you name beneficiaries in your will, a lot of your estate — the money, property and possessions you leave behind — will bypass probate altogether. (Probate is a court that proves a will is valid.) That means your family will get their funds faster and won’t spend a lot of time in probate court.
• Control — When you name beneficiaries in a will or life insurance policy, you control where your money and possessions go — and who gets it. If you don’t name one, the state you live in (California, for example) determines how your assets will be distributed to your heirs. Depending on the state you live in, that might even include ex-spouses!

When do you name a beneficiary?

You name a beneficiary for almost anything dealing with your money, including:

• Life Insurance policies, including Costco’s Life Insurance and Accidental Death & Dismemberment available to all Costco Employees enrolled in the medical plan
• Retirement accounts, including Costco’s Retirement Plan available to most Costco Employees
• Your last will and testament
• Social Security disability (in some cases)
• Savings accounts and checking accounts

You can name any person or organization you want as a beneficiary. However, remember that if you name a minor child, and you pass away while they’re still a minor, the payout is sent in their name to the legal guardian of the minor child’s estate. And if you haven’t already named a legal guardian in your will, a probate court will appoint one for you.

Types of beneficiaries

There are two common types of beneficiaries: primary and secondary.

• A primary beneficiary is the person (or people or organizations) you name to receive your cash, property and possessions when you die.
• A secondary beneficiary is second in line to receive your assets in case the primary beneficiary passes away.

Naming alternate beneficiaries in your will is a simple way to avoid problems and confusion. It might seem trivial, but the consequences of skipping this step can be painful. For example, if your primary beneficiary is unable to receive your assets, and you didn’t name an alternate beneficiary, your assets will go back to your estate and go through probate.

How to choose your beneficiary

When choosing a beneficiary, you need to think about the people who depend on you financially. If you’re married, you’d likely choose your spouse as the primary beneficiary, and your spouse would choose you. (Yes, your spouse needs a will, too!) Together, you would name primary and secondary beneficiaries — in case something happens to both of you.

Keep in mind, people outside your immediate family may also depend on you. Do you help your parents pay their medical bills? Did you agree to pay for your niece’s education? Since you can name more than one beneficiary, you can specify what (and how much) each of these people would receive when you die. That way, those who depend on you can still count on your financial support.

Here are some questions to answer as you choose a beneficiary:

• Who depends on your financial help? Make sure they’re included as a beneficiary.
• If you have children who are minors, who will be the trustee of their money until they turn 18?
• Will you set any conditions on when your children can receive your assets, for example, when they graduate from college, turn 25, pay off any debt they have, etc.?
• Do you want any assets to remain in the family, for example, heirlooms, property, etc.?
• Remember, if you divorce, your beneficiary isn’t automatically changed. You have to take care of choosing a new beneficiary and changing your documents.

Remember, if you divorce, your beneficiary isn’t automatically changed. You will need to designate a new beneficiary after your divorce is finalized.

Don’t leave your loved ones stranded!

Naming a beneficiary in your will might sound like a huge, time-consuming action, but it’s not! And when you do, you can breathe easier knowing you’ve taken the steps to protect your assets and spared your family unnecessary conflict and stress. Your loved ones will be grateful.

Source: Ramsey Solutions. What is a beneficiary?