Definition
A beneficiary is a person or entity named to receive assets (money, property, policy proceeds) from another person after that person dies. Beneficiaries are designated on financial-account paperwork, insurance policies, retirement plans, wills, or trusts. A clear beneficiary designation controls who gets the asset and how it is transferred.
Key takeaways
– Naming beneficiaries on account forms generally causes assets to pass directly to them and bypass probate.
– A primary beneficiary is first in line; a contingent (secondary) beneficiary inherits only if the primary cannot.
– Special rules apply to retirement accounts (inherited IRAs) and to minors; a trust or guardian may be needed.
– A “revocable” beneficiary can be changed by the owner; an “irrevocable” beneficiary usually cannot be removed without that beneficiary’s consent.
– If you don’t name beneficiaries, state law (intestacy) and probate processes determine who receives assets.
Why beneficiary designations matter
– They override instructions in a will for the specific account or policy.
– They speed up distribution and often avoid probate delays and fees.
– They affect taxes and required distributions for retirement accounts.
– Failing to update beneficiaries after major life events (marriage, divorce, birth, death) can create unintended outcomes.
Common beneficiary types (short definitions)
– Primary beneficiary: first person or entity entitled to the asset.
– Contingent (secondary) beneficiary: receives the asset only if the primary is deceased or cannot be located.
– Designated beneficiary (retirement account context): anyone named on the account; may be subject to specific withdrawal rules.
– Eligible designated beneficiary (per retirement-plan rules): spouse, minor child of the deceased, a person not more than 10 years younger, or a chronically ill/disabled person—different distribution rules can apply.
– Non-designated beneficiary: an estate or trust titled as beneficiary; different inherited-account rules usually apply.
Revocable vs. irrevocable beneficiary
– Revocable beneficiary: can be changed by the account owner at any time without the beneficiary’s consent.
– Irrevocable beneficiary: cannot be removed or changed without that beneficiary’s agreement. Irrevocable designations are less common, but they can be used in some planning or lending situations.
How beneficiary designations interact with other documents
– Account beneficiary designations (on a life insurance policy, retirement account, bank account, etc.) generally take precedence over language in a will.
– If no beneficiary is listed, the asset may go through probate and follow state intestacy laws or the terms of your will.
Special cases and warnings
– Minors: most institutions will not pay assets directly to a child under age of majority. Use a trust or name a guardian/trustee.
– Divorce: in many jurisdictions, divorce may invalidate a spousal beneficiary designation, but rules vary—check and update forms.
– Estates and trusts named as beneficiaries: a trust can control timing and conditions; an estate as beneficiary usually forces probate.
– Taxes: life insurance death benefits are generally received tax-free, but any interest paid on that benefit after death is taxable. Retirement assets inherited by non-spouse beneficiaries have complex tax and withdrawal rules.
How to choose a beneficiary — step-by-step checklist
1. List your assets that allow beneficiary designations (life insurance, IRAs/401(k)s, bank brokerage and payable-on-death accounts).
2. Decide on primary beneficiary(ies) and, optionally, contingent beneficiary(ies). Specify shares (e.g., 60% / 40%).
3. For entities, use full legal names and tax ID numbers where required. For individuals, use full legal names and dates of birth to reduce
identification errors and ambiguity. Include a mailing address and relationship (e.g., “Jane Q. Doe, daughter”) when space permits. If a Social Security number or tax ID is requested, follow the plan/provider’s secure instructions — do not include sensitive numbers on copies you keep in unsecured places.
4. Decide on the method of splitting (per capita vs. per stirpes).
– Per capita means each named beneficiary who is alive at the decedent’s death receives an equal share.
– Per stirpes (Latin for “by branch”) means a deceased beneficiary’s share passes to his or her descendants.
Choose the method explicitly if the form or plan allows it; otherwise state percentages.
5. Address minor beneficiaries.
Minors generally cannot legally hold assets outright; naming a minor directly often forces a court-appointed guardian or conservatorship. To avoid that:
– Name a trust (see step 6) with instructions for distributions to the minor, or
– Use a custodial account under state law (e.g., Uniform Transfers to Minors Act, UTMA) if the institution offers it, or
– Name an adult custodian or guardian rather than the minor.
Be explicit about ages and distribution milestones (e.g., “distribute for health, education, maintenance until age 25”).
6. Consider trusts and their types.
– Revocable living trust: a trust you control during life; naming it beneficiary can manage timing and conditions after death.
– Irrevocable trust: can provide creditor or tax protection in certain cases but has other tradeoffs.
If naming a trust, use the trust’s full legal name, date of execution, and the trustee’s name. Also verify whether the plan accepts trusts as beneficiaries and whether the trust language meets the plan’s requirements.
7. Understand retirement account specificity and timing rules.
Tax and distribution rules differ by account type. For inherited IRAs and other retirement plans, note the SECURE Act (2019) introduced a 10‑year rule for most non-spouse beneficiaries: the inherited account must be emptied by the end of the 10th calendar year after the owner’s death (exceptions exist). These rules affect tax timing and should influence beneficiary choice and trust language. Check IRS Publication 590‑B for details and assumptions.
8. Coordinate beneficiary designations with your will and other estate documents.
Beneficiary designations on accounts and policies generally supersede the will. Avoid contradictory instructions (e.g., will saying “split my IRA among my children” while the IRA
…IRA beneficiary designation names a single child.)
9. Review and update beneficiary designations regularly
– When to review: after marriage, divorce, birth/adoption of a child, death of a beneficiary, a major change in wealth, or every 2–3 years as a routine check.
– How to review: obtain current copies of beneficiary forms from each custodian (brokerage, bank, insurer, retirement plan). Confirm the beneficiary names, types (individual, trust, charity), percentages, contingent beneficiaries, and signature dates.
– Recordkeeping: keep PDFs or scanned copies of the signed beneficiary forms and a note of the date you submitted them. Track confirmation emails or mailed receipts from the custodian.
– Step-by-step checklist:
1. List all accounts and policies with beneficiary designations.
2. Request current beneficiary forms from each custodian.
3. Compare each form to your estate plan and will.
4. Update any conflicting or outdated designations.
5. Save copies and set a calendar reminder for the next review.
10. Special situations and common solutions
– Minor beneficiaries: Custodian-to-minor rules vary. Naming a minor directly can create court involvement when distributions are needed. Common solutions: (a) name a trust that holds assets for the minor, or (b) use a Uniform Transfers to Minors Act (UTMA) / Uniform Gifts to Minors Act (UGMA) account with a responsible custodian. Each has different control and tax implications.
– Special-needs beneficiaries: For someone receiving means-tested government benefits, direct inheritance may disqualify them. Use a properly drafted special-needs trust (often called a supplemental needs trust) to preserve benefits. Coordinate with an attorney experienced in special-needs law.
– Spendthrift concerns: A spendthrift trust can restrict beneficiary access to principal and protect assets from creditors. Check state law and the plan/custodian’s acceptance of a trust beneficiary.
– Contingent beneficiaries: Always name at least one contingent beneficiary to avoid intestacy (state law distribution).
– Divorce and remarriage: In many states and plans, a divorce may not automatically change beneficiary designations — you must update forms. Some employer plans require spousal consent to name a non-spouse primary beneficiary.
11. Spousal and retirement-account specifics
– Spousal rollover rights: A surviving spouse who inherits an IRA typically can roll it into their own IRA and use their own required minimum distribution (RMD) rules. Non-spouse beneficiaries cannot roll inherited IRAs into their own accounts; they must follow inherited-account rules.
– SECURE Act 10‑year rule — worked numeric example:
– Scenario: Non-spouse beneficiary inherits a pre-tax IRA worth $100,000 in 2025. Under the SECURE Act, the beneficiary generally must empty the account by December 31, 2035 (10th calendar year after owner’s death).
– Two simple distribution options:
1. Lump-sum in year 10: Withdraw $100,000 in 2035. If the beneficiary’s marginal federal tax rate is 22%, federal tax ≈ $22,000 (ignoring state tax and deductions), net proceeds ≈ $78,000.
2. Spread over 10 years: Withdraw $10,000 per year. If the marginal tax rate remains 22%, annual federal tax ≈ $2,200; total federal tax over ten years ≈ $22,000. (Same total tax in this simplified example because all withdrawals are taxed at the same marginal rate; actual timing and brackets can change the result.)
– Notes and assumptions: This example assumes ordinary income taxation on distributions, no prior RMD obligations, stable marginal tax rates, and no state income tax. The actual tax outcome depends on timing, income levels, deductions, and whether the beneficiary is an “eligible designated beneficiary” (exceptions exist).
– RMD timing for deaths before/after RMD start: Rules differ if the owner was already taking RMDs. Check IRS Publication 590‑B and plan rules for exact timing.
12. Practical steps to implement safe beneficiary designations
– Use full legal
legal name, date of birth, Social Security number or taxpayer ID, and relationship (e.g., spouse, son). Ambiguities and partial names are common causes of misdirected or contested distributions.
12. Practical steps to implement safe beneficiary designations (continued)
Checklist — what to include on a beneficiary form
– Full legal name (no nicknames).
– Date of birth.
– Social Security number or taxpayer identification number.
– Exact percentage share (total must equal 100% across all primary beneficiaries).
– Relationship to account owner (helps custodians verify identity).
– Whether the designation is “per stirpes” (by branch/lineage) or “per capita” (equal shares to living beneficiaries). Define per stirpes: if a beneficiary predeceases the owner, that beneficiary’s share goes to his/her descendants.
– Contingent (secondary) beneficiaries, with the same identifying details and percentages.
– If naming a trust, provide the trust’s full legal name, date of trust, and trustee contact info. Also confirm that the trust language is drafted to accept retirement plan assets (trusts can be “see-through” for RMD rules only if they meet IRS requirements).
– Signature, date, and any required witness/notary per plan rules.
Step-by-step process to name or change beneficiaries
1. Locate the current beneficiary form on the plan custodian’s website or request it by phone. For IRAs and employer plans, online forms are common; some require a paper signature.
2. Complete all required fields using the checklist above. Avoid leaving ambiguous blanks.
3. Specify percentages that sum to 100% for each beneficiary tier (primary and contingent).
4. If using a trust, confirm with the custodian that the trust is acceptable and provide trust documents if requested.
5. Submit the form as instructed (upload, mail, or deliver). Keep proof of submission (confirmation e‑mail, certified mail receipt).
6. Obtain a copy of the accepted form from the custodian and file it with estate records.
7. Notify named beneficiaries (optional but recommended) and tell them where to find the account custodian and executor/trustee contact info.
8. Revisit beneficiary designations after major life events (marriage, divorce, births, deaths, estate plan changes, changes in tax residence).
Common pitfalls and how to avoid them
– Naming “my estate” as beneficiary: This causes the asset to pass through probate, may trigger different tax timing rules, and defeats the primary purpose of a beneficiary form. Instead, name individuals or a properly drafted trust.
– Failing to name contingents: If all primaries predecease you and no contingent is listed, the asset may default to the estate.
– Using ambiguous language (e.g., “to be divided equally among my children” without naming children): Name each child explicitly and provide percentages or specify “equal shares” with a clear list.
– Forgetting to update after divorce: Some states automatically revoke spouse designations; others do not. Check plan policy and state law and update the form.
– Naming a minor child outright: Custodial accounts or a properly funded trust avoid the need for a court-appointed guardian to manage funds.
– Not coordinating with a trust: If you intend to leave retirement assets to a trust, verify the trust qualifies as a designated beneficiary for tax and RMD (required minimum distribution) purposes.
– Overlooking nonresident alien beneficiaries: Withholding rules and tax treaties can affect distributions to non‑U.S. persons. Confirm tax treatment before designating.
Worked example — naming primary and contingent beneficiaries
Assume you have a $300,000 IRA. You name:
– Primary: Spouse A — 70%
– Primary: Child B — 30%
– Contingent: Child C — 50%
– Contingent: Grandchild D — 50%
Scenario outcomes:
– If both primary beneficiaries survive you: Spouse A receives $210,000; Child B receives $90,000.
– If Spouse A predeceases you but Child B survives: Child B receives $300,000 (100% as the surviving primary).
– If both primaries predecease you: Child C and Grandchild D split the $300,000 equally ($150,000 each) as contingents.
Note: Tax and RMD outcomes depend on the beneficiaries’ status (spouse vs non-spouse, trust vs individual) and current law; consult plan rules and tax guidance before finalizing.
Practical tips when using trusts as beneficiaries
– Use a “see‑through” or “look‑through” trust design if you need the trust to be treated as an individual beneficiary for RMD purposes. The trust must meet IRS criteria (e.g., beneficiaries identifiable, trust being valid under state law).
– If you want stretch distributions (where allowed), confirm the trust’s language allows required distribution options and names beneficiaries by family relationship and age.
– Fund the trust properly: naming the trust as beneficiary does not fund it for non‑retirement assets; ensure other estate plan steps align.
Recordkeeping and review cadence
– Keep a digital and physical copy of each beneficiary form and confirmation.
– Review beneficiary designations at least every 2–3 years and after life events (marriage, divorce, births/adoptions, deaths, moves abroad).
– Maintain a simple beneficiary summary in your estate binder showing primary/contingent designations, account numbers, and custodian contact information.
When to consult professionals
– Use an estate planning attorney if you are naming trusts, have complex family dynamics (second marriages, blended families), or need to coordinate state community‑property rules.
– Use a tax professional for cross‑border issues (nonresident beneficiaries) or significant taxable-implication decisions.
Quick operational checklist (one page)
– [ ] Obtain current beneficiary form from custodian.
– [ ] Enter full legal names, SSNs/TINs, DOBs, and relationships.
– [ ] Specify exact percentage allocations; primaries total 100%.
– [ ] Add contingent beneficiaries with percentages summing to 100% within that tier.
– [ ] If naming a trust, attach trust name, date, trustee info, and confirm acceptability.
–
– [ ] If naming a trust, attach trust name, trust date, trustee contact, and confirm the custodian accepts trust beneficiaries. Also indicate whether the trust is revocable or irrevocable and include trust tax ID if available.
Additional operational tips
– Request a written acknowledgement. After you submit a change, ask the custodian for a dated confirmation showing the new designation(s) and the form version. Keep a scanned copy in your estate binder.
– Time the update with other documents. Coordinate beneficiary updates with any changes to your will, durable power of attorney, or health-care proxy so beneficiary language is consistent.
– Watch account-type rules. Retirement accounts (IRAs, 401(k)s), annuities, and employer plans may have plan-specific forms or restrictions; some employer plans require plan-specific beneficiary forms that override an IRA custodian’s form for assets in that plan.
– Record the version. Many institutions change their forms. If you sign a form that references a “plan document” or form version, note that version on your copy.
Numeric examples (worked)
1) Simple primary allocation
– Scenario: You want to leave a brokerage account to three children.
– Choice: Primary beneficiaries — Child A 50%, Child B 30%, Child C 20% (these add to 100%).
– Contingent beneficiaries — Sibling D 60%, Charity E 40% (these add to 100% within the contingent tier).
Result: If all three primaries survive you, distribution follows 50/30/20. If all three primaries predecease you, the contingent tier receives 60/40.
2) Per stirpes vs. per capita (brief)
– Per stirpes: If a beneficiary predeceases you, their share passes to their descendants (by branch). Example: Child B (30%) dies leaving two kids; if per stirpes, Child B’s 30% splits 15%/15% to those kids.
– Per capita: Living beneficiaries at the same generational level split the deceased beneficiary’s share. Example: If Child B dies and per capita is specified, Child A and Child C might share the remaining 30% differently depending on language.
Action: Always specify per stirpes or per capita if you want a particular treatment.
Handling minors and incapacity
– UTMA/UGMA custodial accounts: These are straightforward for small, nonretirement assets. A named custodian manages assets until the minor reaches the state-specified age (often 18–21). Define the custodian and understand state age rules.
– Naming a trust for minors: Create a trust, name it as beneficiary, and appoint a trustee. Trusts allow control over timing and conditions for distributions and can reduce the risk of an outright transfer at legal majority.
– Practical rule: If you do not want a minor to receive cash outright at 18–21, name a trust or a custodial arrangement rather than an individual minor.
Common pitfalls and how to avoid them
– Pitfall: Outdated forms after life events (marriage, divorce, births). Remedy: Review beneficiary forms after major life events; update promptly.
– Pitfall: Typos or informal names. Remedy: Use full legal names and SSNs/TINs when required; attach a separate page with clarifying details if necessary.
– Pitfall: Conflicts with a will. Remedy: Know that beneficiary designations typically control for account-linked assets and can override wills for those assets; coordinate documents.
– Pitfall: Naming an estate as beneficiary unintentionally (this can force probate). Remedy: Prefer individuals, trusts, or tax-exempt entities rather than “estate” unless that is intentionally desired.
– Pitfall: Community-property uncertainty. Remedy: In community-property states, consider spouse rights and consult an attorney if you intend to disinherit or override statutory spousal rights.
How to change or revoke a beneficiary (step-by-step)
1. Obtain the custodian’s current beneficiary-change form or use their secure online process.
2. Complete full legal names, SSNs/TINs, DOBs, relationships, and exact percentages.
3. Sign and date the form according to custodian requirements (witnesses/notary only if requested).
4. Submit by the custodian’s preferred method (secure upload, mail to specific address, or in-person).
5. Request and save a written confirmation or screenshot showing the change and form version.
6. Shred superseded beneficiary-designation forms only after you have confirmation and secure backups.
Review schedule (recommended)
– Immediate: After marriage, divorce, birth/adoption, death of a beneficiary, or significant change in wealth.
– Annual: Quick check during a defined month (e.g., tax season) — confirm names, percentages, and contact details.
– Trigger-based: Before large gifts, retirement account rollovers, or relocation to another state.
Coordination with tax and probate considerations
– Tax effects: Beneficiary designations do not eliminate tax consequences. For example, retirement account distributions to beneficiaries may be taxed. Consult a tax professional for timing and tax-optimization strategies.
– Probate: Nonprobate transfers (via beneficiary designations) typically bypass probate, but auxiliary issues (creditor claims, spousal rights) can still arise.
– Cross-border issues: Nonresident beneficiaries may trigger withholding or tax reporting requirements for retirement assets and some investment accounts.
When to consult professionals (refined)
– Estate attorney: Use when you have blended families, complex ownership structures, want to achieve creditor protection, or plan to use trusts as beneficiaries.
– Tax advisor: Use for significant retirement-account planning, cross-border beneficiaries, or when estate taxes may apply.
– Plan administrator/HR: For employer-sponsored plans, consult plan documents or HR to confirm which form governs.
Quick sample beneficiary clause language (adapt and have counsel review)
– Individual: “Jane Mary Smith, SSN XXX-XX-1234, DOB 01/02/1975 — 50%.”
– Trust: “The John Q. Revocable Trust dated March 15, 2020 — Trustee: John Q. Trustee, contact: 555-0100 — 100
— 100%.”
– Contingent (secondary) beneficiaries (sample): “If any primary beneficiary predeceases me, then the following contingent beneficiaries shall receive the deceased beneficiary’s share as indicated: John A. Doe, SSN XXX-XX-2345 — 60%; Maria L. Doe, SSN XXX-XX-3456 — 40%.”
– Minor beneficiary (sample with trustee/guardian): “For the benefit of Sam T. Minor, DOB 06/15/2016, SSN XXX-XX-4567. If Sam is under age 21 at the time of distribution, pay funds to the Sam T. Minor Trust dated 01/01/2020, Trustee: Anna Trustee — contact 555-0202.”
– Payable-on-death / Transfer-on-death (POD/TOD) account (sample): “Payable on death to: Alex R. Beneficiary, SSN XXX-XX-5678, DOB 02/02/1980 — 100%.”
– Joint account with right of survivorship (sample): “John Q. Owner and Jane Q. Owner, as joint tenants with right of survivorship — on death of an owner, surviving owner receives full ownership.”
Checklist: naming and maintaining beneficiary designations
1. Use full legal names, dates of birth, and taxpayer ID numbers (SSN or EIN) when possible. These reduce ambiguity.
2. Specify exact percentages and ensure they add up to 100% among primary beneficiaries.
3. Name contingent beneficiaries and consider how distributions should be allocated if a primary beneficiary predeceases you.
4. For minors, name a trust or trustee (or a guardian) rather than a minor directly, because custodial rules vary by state.
5. If you intend a trust to be the beneficiary, reference the trust by its full legal name and date (e.g., “The Jane Q. Revocable Trust dated May 1, 2021”).
6. Confirm whether your employer-sponsored plan or financial institution requires a specific form or language; their form usually governs.
7. Review beneficiary designations after major life events: marriage, divorce, birth/adoption, death, change of domicile, or large changes in net worth.
8. Store beneficiary forms and confirmation statements with estate documents; tell executors where to find them.
9. Coordinate beneficiary designations with your will and any trusts. Account beneficiary designations generally override wills for the assets governed by those designations.
10. Check state law on divorce effects—some states automatically revoke spousal beneficiary designations upon divorce; others do not.
Worked numeric examples
– Simple split: Account balance = $150,000. Primary beneficiaries: A — 50%; B — 30%; C — 20%. Payout amounts: A = $75,000; B = $45,000; C = $30,000.
– Contingent example: Same account. If B predeceases the owner and no contingent named for B, remainder is reallocated per the owner’s stated percentages among surviving primaries (A 50% of total, C 20% of total) unless the form or state law specifies otherwise. To avoid surprises, name specific contingents or specify alternate allocation rules.
– Per stirpes vs. per capita (distribution method): Suppose a decedent intends to leave equally to three children: Child 1, Child 2 (predeceased leaves two children), Child 3.
– Per stirpes: Each child’s