Absolute Beneficiary

What Is an Absolute Beneficiary?

An absolute beneficiary is a designation of a beneficiary that can not be changed without the written consent of that beneficiary. This term is often used in connection with an insurance policy when a beneficiary is named. The terms of the policy or agreement will specify whether the beneficiary is absolute or if it can be changed.

Key Takeaways

  • An absolute beneficiary is a beneficiary of a policy, such as an insurance policy, that cannot be changed without the written consent of that beneficiary.
  • Not all policies name an absolute beneficiary, but once one has been named, another party can't change the name, even in circumstances such as death or disownment.
  • Although not required, it may be useful to include a contingency beneficiary as an alternative in case the absolute beneficiary should die or be unable to take ownership of the benefits.

Understanding Absolute Beneficiary

The absolute beneficiary is a permanent and binding designation. By law, the individual or entity that requests a policy with an absolute beneficiary, or the company that provides it, cannot later change the beneficiary without the written permission of that initially named beneficiary.

Also referred to as an "irrevocable beneficiary," absolute beneficiaries can also refer to a trust, an employee benefit plan such as a pension, or any other instrument or contract with a beneficiary clause.

Although an absolute beneficiary cannot be changed without the beneficiary’s permission, it can still be a good idea to name a contingency beneficiary in these situations. That provides a backup option, just in case the party named as the absolute beneficiary dies or is otherwise unable to take legal ownership or control of the benefits before the policy is redeemed or the assets are transferred.

Special Considerations

The naming of absolute beneficiaries is common in divorce settlements or liability cases where part of the settlement is the naming of a given person as a beneficiary. This gives the benefitting party a considerable sense of security since they know it is unlikely that they would be deprived of the payments or benefits to which they are legally entitled. This security is based on the fact that it would be very challenging, and likely impossible, for the other party involved in the case to later try to make changes to the terms of the agreement that relate to the beneficiary.

For this reason, parties involved in any settlement or agreement that could involve the naming of an absolute beneficiary should proceed with caution. Any legal agreement that includes designations of absolute beneficiaries should be made very carefully and with the consultation of professionals.

Once a party is named an absolute beneficiary, the other party involved in the agreement cannot later remove that person as a beneficiary, even in the case of a divorce, disownment, estrangement, falling out, or another form of separation or disagreement. The only “escape clause” would be if the absolute beneficiary voluntarily agrees to be removed and replaced, but it is very unlikely that a person would relinquish claims to assets or benefits to which they are legally entitled.

Example of Absolute Beneficiary

Roger's family consists of his wife and two sons—Frank and Mike. While making out his will, Roger wants to ensure that his wife, who is a homemaker and has never worked in an office setting, has sufficient income after his death. He sets aside a substantial portion of the funds in his estate for her and names her the absolute beneficiary of those funds. The remaining portion of his will is distributed between his two sons, and his younger brother is named as trustee.

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