DEFINITION of Named Beneficiary

The term refers to any beneficiary named in a will, a trust, an insurance policy, pension plan accounts, IRAs, or any other instrument, who receives the benefits. Named beneficiaries are the beneficial owners of the property and will share in the proceeds at the time of disposition. In some cases, such as an annuity policy, the policyholder and the named beneficiary may be the same person.

BREAKING DOWN Named Beneficiary

Beneficiary designations can be complex. For example, by naming a specific beneficiary in a life insurance policy, the proceeds of the insurance policy will not be subject to the will or to probate and will pass directly to the named beneficiary.

There are many different kinds of beneficiaries, such as primary or contingent beneficiaries. A contingent (also called a secondary) beneficiary will receive assets if the primary beneficiary is deceased, unable to be located, or refuses the inheritance at the time any proceeds are to be paid. A will generally outlines the predetermined conditions that must be met before the contingent beneficiary may receive any insurance proceeds or retirement assets.

In addition, a named beneficiary need not be an individual. A named beneficiary of an insurance policy, for example, can be the estate of the deceased, in which case the actual beneficiaries will be designated in the will. In May 2018, the Houston Chronicle detailed means by which an individual residing in the state of Texas could name a charity as a beneficiary. The individual should first notify the charity that it has been named as a beneficiary. Then, the charity must receive the grantor’s bank details along with a death certificate in order to claim the funds. In this case probate is not needed to claim IRA benefits.

Risks Related to Named Beneficiaries

It’s important for grantors to incorporate the naming of one or more beneficiaries into a full estate planning process. Without careful thought, naming someone on a financial account, for example, can cause someone else to be disinherited. In addition those not named could lose government benefits or receive unexpected tax bills.

Many people name beneficiaries on key accounts throughout their lives. For this reason, many financial advisers recommend reviewing and updating all beneficiary designations every few years, particularly after a major life event such as a divorce or death of a loved one. In addition, it is recommended to name the same beneficiary to multiple accounts to maintain consistency.