A Mini-Lesson on Beneficiaries

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A beneficiary is an individual or an entity (such as a charity or estate) that is entitled to receive a benefit from something; a promise, agreement or contract.  They may become eligible to receive benefits under a will or trust, or a financial contract like a retirement planannuity, or life insurance policy.  There are numerous types of beneficiaries.  A contingent beneficiary (also known as a secondary beneficiary) is entitled to proceeds from a trust or insurance policy if a specific event occurs, like the death of a primary beneficiary.  An income beneficiary can receive income from a trust, but not the principal.  For example, a husband or wife may receive income for a lifetime, while another person is paid the principal.  Sometimes a trustee is permitted to distribute some of the principal of the trust to an income beneficiary as needed if supporting the beneficiary was the original purpose of the trust.  A third party beneficiary is a contractual beneficiary, such as mortgagees and investors.  Another example of a third party beneficiary is a creditor beneficiary, named to pay off a debt or obligation.  Similar to what they sound like, a donee beneficiary is entitled to a gift or donation and an incidental beneficiary
benefits from a contract when the parties to the contract did not intend for them to benefit.

 

Most of us are familiar with naming a beneficiary or beneficiaries in our 401(k), pension plan, retirement account, or life insurance policy.  Unfortunately, that’s often where the conversation ends.  Life happens, and we rarely think of the beneficiaries again.  I recently posted a blog entitled “How Often Should I Review My Estate Plan” which discussed the importance of updating your legal documents on a regular basis to ensure that your assets go where you want them to.  Understanding your beneficiary options and making sure that your beneficiary designations are current and correct in each and every contract is critical.  It’s heartbreaking when a family finds themselves in a room together for the reading of a will and realizes that a child, sibling, charity, or pet that the departed adored was forgotten because documents were out of date.  It’s an extremely emotional situation which can impact the individual who was overlooked in ways that far surpass money and things.  So, again, I want to encourage you to update your beneficiaries immediately if you haven’t done so in awhile.  It can make a really big difference in the speedy distribution of assets, as well.  For example, assets in a retirement account in California are handled like a trust so they can be distributed with proof of the owners passing if s/he designated who the beneficiaries are with the administrator of the plan – which is far easier and less expensive than probate.

 

If you’re having a difficult time figuring out who your beneficiary or beneficiaries should be, it’s common to leave something to your spouse, children and grandchildren, close relatives or friends, a church or synagogue you attend, charitable organizations and causes you’re passionate about, a local university or one you attended.  Many people love their pets like their children, so they make sure they’re well taken care of after they pass.  Whoever you name as a beneficiary, it’s very important that you provide your estate planning attorney with enough information about the person or entity to make them easy to find.  Be as specific as you can.  Helpful identifiers are a full name, address, and birthday.  It doesn’t hurt to share how you know the person, as well (i.e. Dottie has been my best friend since grade school.  She lived two houses down from me throughout my childhood on Union Avenue S.E.).

 

If you fail to mention your spouse and children, what they will get when you pass away depends on the state you live in.  Here in California, it depends upon the nature of your property.  If it’s community property, your spouse will get your one half of the community property.  Your spouse already owns one half of the property.  When you die, they receive your half as well.  If it’s separate property and there are minor children involved, your spouse must share with the children and their share depends on how many minor children there are.  If you do not want to leave anything to your child(ren), stepchild(ren), or illegitimate child(ren), you can disinherit them.  If you fail to mention your children in your will, the state will assume that you accidentally left them out and they should get a portion of your estate.

 

When it’s all said and done, please take a moment to stand in the shoes of those who are left behind from present (and past) marriages prior to naming your beneficiaries to ensure that no one feels overlooked, unloved, or unimportant.  Consider your loved ones age and their needs – especially if you have family members with emotional, psychological or physical disabilities, or addictions.  Do all you can to “keep the peace” within your family after you’re gone.  Losing a loved one is difficult enough as it is; additional stress or strain from a will can be avoided with a little forethought.  Parrish Law is a caring and compassionate law firm, dedicated to helping families create their legacy of love.  We’ll gladly guide you through the beneficiary process while preparing your estate plan.   If you have questions about your existing plan and you don’t have an attorney who can answer them for you, feel free to call us at (408)741-3500.  The first consultation is always free!

 

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