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All About Beneficiaries: The Who, What, and Why

Understanding the role of a beneficiary is important when it comes to estate planning. Whether you are just starting to draft your plan, or you are updating an existing plan, knowing what a beneficiary is, what types there are, and how to choose the right one(s), will help you feel more confident in your decisions. 

The beneficiary or beneficiaries in your Last Will and Testament are the people or entities you choose to receive your property after you pass away. Most people select family members or loved ones, but a beneficiary can also be an organization or charity that holds special meaning to you. The beneficiaries of your Will can receive anything from your real estate to your personal property. 

Types of Beneficiaries

In your Will, you can identify the order with which you want your beneficiaries to receive your assets. Here are the different types of beneficiaries:

  • A primary beneficiary is an individual or organization that is first in line to receive certain assets from your estate. 
  • A contingent beneficiary is named as the second in line to receive benefits. If the primary beneficiary should predecease the owner, all assets would automatically go to any named contingent beneficiary. 
  • A residuary beneficiary will receive any remaining assets in your estate after all gifts and debts have been paid. You can name more than one residuary beneficiary and choose the percentage that each should receive.

It is important to note that if any of your beneficiaries are under-age or incapacitated on the date of your death, they can still receive the assets you wish to give them, but you want to make sure that they do not receive the assets outright.  An under-age beneficiary cannot legally receive money outright and, therefore, this could require a guardianship proceeding.  To avoid this problem, there are provisions that should be put in your Will to provide for them while they are under-age without the need of a guardianship proceeding.  Likewise, an incapacitated person cannot legally receive money outright or a guardianship proceeding may be required.  In fact, if they are receiving governmental benefits, and you leave them money outright, you may disqualify them from their governmental benefits.  To avoid this problem, there are provisions that should be put in your Will to provide them while they are incapacitated without the need of a guardianship proceeding AND will not disqualify them from continuing to receive their governmental benefits.  

Who Can Be a Beneficiary?

When it comes to naming your beneficiaries, you can choose pretty much anyone you want, except someone who is serving as a witness to the signing of your Will. You can name your spouse, children, friends, or loved ones. In your Last Will, you can also choose, for the most part, to leave some or all of your assets to an organization or charity of your choice (although there are some limitations).  Therefore, you should consult with an estate planning attorney because you want to be sure that, when naming an organization, you are incredibly clear—oftentimes, there are multiple organizations with the same name and there are no conflicts with the law. The goal is to ensure there is no confusion or legal problems, so your executor can carry out your wishes accordingly. 

What Can You Give to Your Beneficiary?

By including specific guidance in your Will, you can make sure that your property is distributed to the people you want, in the way that you want. This will also help your family avoid disagreements, since you have decided who will get what for them. The following are types of property and assets that you can include in a Will:

  • Real estate, including land
  • Cash, money in checking accounts, savings accounts, and money market accounts
  • Intangible personal property, such as stocks, bonds and other forms of business ownership, intellectual property, royalties, patents, and copyrights
  • Unproductive property, such as cars, artwork, jewelry, and furniture

However, if you are trying to avoid probate, these should not be included in your Will and there are other ways of passing title of these assets to your beneficiaries.  Additionally, there is also some property that you cannot include in a Will and there are certain conditions to receiving assets that you cannot include in a Will. Because of this and the many other nuances surrounding beneficiaries, it is always wise to reach out to an attorney when it comes to your estate planning. They will be able to assist in answering any questions you might have, and will make sure that your Last Will s drafted to accomplish exactly what you want.

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