It can cause a lot of trouble after you pass away if you have not set up your beneficiary designations correctly. A designated beneficiary is named on a life insurance policy or on a financial account as the person who will receive those assets, in the event of the account holder’s death.
This person usually must file a claim with a copy of the death certificate to receive the assets.
NJ Money Help’s recent article entitled “Beneficiary designation – specific or not?” says that naming a beneficiary takes a little consideration.
When naming the beneficiaries on your accounts or insurance policies, you should always consider a primary and secondary (or contingent) beneficiary.
The owner of a policy or account can name multiple beneficiaries. The proceeds or assets can be divided among more than one primary beneficiary. Likewise, there can also be more than one secondary beneficiary.
The primary beneficiary or beneficiaries are the first ones to receive the asset. The secondary beneficiary is second next in line, if the primary beneficiary dies before the owner of the asset, can’t be found, or refuses to accept the asset.
Note that simply naming beneficiaries in generic terms, such as “wife,” “spouse”’ or “children,” may create legal issues, if there’s a divorce or in case someone becomes disenfranchised.
It is always best to name your beneficiaries specifically and if they are minors, make certain you have designated a guardian.
Because our lives are constantly changing, you should review your life insurance policies, IRAs, 401(k)s, and any other instruments that require beneficiary designations every couple of years to make certain that everything is exactly the way you want. An elder law estate planning attorney can also help you ensure that your beneficiary designations, and accounts with joint tenancy are part of a larger estate plan that includes your last will and any trusts. Without taking this step you may inadvertently dis-inherent individuals who were not named as a beneficiary.
Reference: NJ Money Help (Oct. 2017) “Beneficiary designation – specific or not?”