Selecting a beneficiary is a critical component of your last will and testament. Some people keep it simple and choose only one beneficiary while others choose multiple beneficiaries. It all depends on your situation and estate planning needs.
What is a will beneficiary?
The beneficiary or beneficiaries in your last will and testament are the people or entities you choose to receive your property after you pass away. Most people select their family members or loved ones, but a beneficiary can also be an organization or charity that is close to your heart.
The beneficiaries of your will can receive anything you own from your real estate, to your personal property such as your beloved family heirlooms. However, when it comes to financial accounts (retirement accounts, bank accounts, life insurance policies, etc.), you should make sure to contact your financial institution to determine if there are any beneficiaries already designated on the account. This is because beneficiaries you selected when you opened or updated the account with your financial institution will take precedence over the beneficiaries you designate in your will for the same account. To update an existing beneficiary on a financial account, you would contact your bank and request to make a change to your “beneficiary designation”. This usually entails filling out a simple form with the information of the people you wish to add as beneficiaries of that account.
Who can be a beneficiary in your will?
Generally, you can name anyone you want to be a beneficiary of your last will and testament except someone who is serving as a witness to the signing of your will. As long as they are alive–a deceased person cannot receive property–you can name them as a beneficiary. You can name your spouse, children, other friends or loved ones. The beneficiaries you choose can receive all of your property, some of your property, or even just one specific item. It is up to you how you’d like your property divided up among your beneficiaries.
Choosing your spouse:
Married couples usually name each other as the beneficiaries of their wills. While this is common, it is not required that you name your spouse to receive all your property. However, depending on your state, spouse’s may have certain rights that entitle them to at least some share of your estate.
A spouse’s legal rights and entitlements to the estate of their deceased spouse depends on whether they live in a “common law state” or a “community property state”.
In common law states–most of the country–spouses are protected by state laws that do not allow them to be completely left out of the will or disinherited. The size of the entitlement varies by state but is generally somewhere between one-third to one-half of the estate. In these states, if you leave a smaller portion to your spouse, they can hire a probate lawyer and contest the will during the estate administration. If you wish to disinherit your spouse partially or entirely in a common law state, make sure to seek the legal advice and professional help of a licensed attorney in your state.
In community property states–Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin–spouses do not receive these same protections under the law. This is because in community property states spouses share their earnings throughout the marriage. In these states, you are free to leave as much or as little as you want to your spouse.
Choosing your children:
For purposes of a last will and testament, “your children” refers to any children born to you–including those from a prior marriage–or legally adopted by you. Stepchildren are generally not considered “your children” by law unless you have legally adopted. However, there is no restriction on who you can leave your property to, and you are free to leave your property to children and stepchildren in your last will.
Unlike spouses, children do not have the same legal protections that entitle them to a certain share of the estate. This means you can choose to completely disinherit a child and keep them from receiving any of your property under your will.
Choosing a minor:
You may leave assets and property to minors in your last will and testament. However, minors cannot directly receive or control any property you leave to them in your last will. Generally, if you are leaving property to a minor, their legal guardian will be responsible for managing the property that you left to the minor until they turn 18. This property is usually placed in a trust with the minor’s guardian being the trustee who controls the property within the trust on the minor’s behalf. Upon turning 18, the former minor will assume ownership and control of any property that was left to them.
Choosing an organization or charity:
In your last will and testament, you can also choose to leave some or all of your assets to the organization or charity of your choosing. You want to be sure to be clear when naming the organization so that your executor has no confusion and is able to carry out your wishes accordingly.
Choosing other beneficiaries:
Anyone else that comes to your mind can be a beneficiary in your will. You are free to choose your friends, loved ones, neighbors, or any one else you’d like to receive your property after you pass away.
How to name beneficiaries
When naming beneficiaries in your last will, make sure to be as clear and precise as possible when referring to a beneficiary. This will help the people who are carrying out your final wishes better understand who you want to receive your property and help avoid potential mistakes.
When naming people as beneficiaries, make sure to use their full legal names. It can also be beneficial to add the person’s relation to you (e.g., spouse, father, sister). If two beneficiaries have similar names, be sure to distinguish between them in some way (“my father, John Smith and my brother, John Smith Jr.”)
When naming an organization, it is a good idea to contact the organization directly and find out what name you should use when making a donation or leaving them a gift in your will. Some organizations may use a different name for legal purposes and you want to be sure to use the correct one to avoid any mishaps or mistakes in the carrying our of your wishes.
When naming beneficiaries, you can choose to have just one primary beneficiary and leave all of the estate’s assets to that one person. Or you can choose to have multiple beneficiaries and leave them each property or a portion of your property. If you are selecting multiple beneficiaries in your will, you have to decide how to distribute your assets among them. There are several options for distributing your property among multiple beneficiaries. One option is to divide the property equally among all beneficiaries. You can also choose to divide the property unequally and, for example, leave 40% of your estate to your sister and 60% to your mother. Another method is to leave specific gifts to certain beneficiaries. This final option might be for you if you have sentimental items or heirlooms that you’d like to go to one specific person.
After naming beneficiaries to receive your property, you’ll want to also account for the possibility that the people you named are no longer living at the time of your passing, and thus unable to receive the property you left them. Naming alternate beneficiaries will allow you to specify who should receive your property if the primary beneficiary you chose passes away before you. If a primary beneficiary dies before you, the alternate beneficiaries–also known as contingent beneficiaries–named in your last will and testament would receive that beneficiaries share. If no alternate beneficiary is named and the primary beneficiary dies before you, then that property will be distributed according to your state laws.
No beneficiary named
If you do not name beneficiaries in your last will, or do not have a will, then state law will determine who receives the property in your estate. Dying without a will is known as dying intestate, and your state’s intestacy laws will dictate who gets what, which may not always be right for your situation and your family.