Primary Beneficiary: What Is It and Should You Name One?

Choosing a primary beneficiary is an important step to ensure your wishes for the individuals (and organizations) that matter to you are carried out after your death.

After all, if you neglect to name beneficiaries, state laws prevail. In most cases, a probate court will be making decisions in your absence, delaying estate distribution when your family may need financial support the most.

What Is a Primary Beneficiary?

A primary beneficiary is an individual, entity or trustA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. designated as the first to receive benefits from a deceased person’s estate, including life insurance and other death benefits.

Primary Beneficiary vs. Contingent Beneficiary

It’s also important to name “contingent” beneficiaries—alternative individuals or organizations to receive your estate proceeds in the case of a primary beneficiary’s death or if they’re unable to be located.

Beyond family, you may leave your estate proceeds to organizations, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., friends and others.

Primary Beneficiaries and Spouses

In some situations, if you name someone other than your spouse as your primary beneficiary, your spouse will need to sign a consent acknowledging your decision. This step is particularly important if you reside in a community property state and wish to leave your life insurance policy to someone other than your spouse.

Can You Name More Than One Primary Beneficiary?

Yes, you may have more than one primary beneficiary. What’s more, you can allocate different percentages of your estate to each recipient. For example, you could leave 50% to your significant other, 20% each to your two children and 10% to a trust. Overall, the asset distribution total must equal 100%.

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Primary Beneficiaries and Checking Accounts

Most banks do not require beneficiaries for checking accounts. However, without an assigned beneficiary, these funds will be probated after your death, causing financial delays for loved ones.

Instead, consider these two options:

• Add your beneficiary as an account owner. As you age, it’s helpful having another individual permitted to administer your account details.
• Use a Payable on Death (POD) account. A POD provides instructions to the bank; specifically, what to do with your assets after your death, ultimately avoiding probate.

How to Choose a Primary Beneficiary

A rule of thumb for selecting a primary beneficiary is to consider who needs financial support and resources. However, it’s also important to factor fairness into your decision.

For example, you may have two children who are both professionally successful, yet one earns a great deal more than the other. How will you determine your primary beneficiaries’ inheritance percentages?

Parents often struggle with this decision. We recommend consulting an experienced financial professional who can guide you through the decision-making process, and has a track record of helping to maintain family harmony.

Primary Beneficiaries and Asset Transfer Factors

Naming beneficiaries is important; determining how to transfer your assets upon your death is also critical.

For example, if you have a child with special needs, naming them as a primary beneficiary and leaving a large inheritance may disqualify them from receiving federal or state benefits. In this instance, a Special Needs TrustAn estate-planning tool that allows beneficiaries with a disability or additional needs to retain assets while still receiving government benefits like Medicare or Supplemental Security Income, even if the inherited amount puts them over those programs' income limits. can be an effective solution. Ultimately, the trust owns the assets, meaning your child remains eligible for benefit programs.

Next Steps

Beyond choosing your primary beneficiaries, it’s also critical to review your beneficiaries each year, particularly if you’ve experienced a significant life event like a birth, death, divorce or marriage.

If you’re unsure how to choose your beneficiaries, seek guidance from experienced financial professionals who understand the process and can help you think through your selection and approach. Contact Adviser Investments anytime for assistance. We’re here for you.

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