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Beneficiary Designation Form: How to Make the Choice

Beneficiary Designation Form: How to Make the Choice

When you open an investment account or a life insurance policy, you need to choose a beneficiary to benefit from your assets. The company operating the account will require you to fill out a beneficiary designation form with the names of the individuals or group that would inherit your money. For a lot of families, choosing who would inherit investments or policies can be a challenging endeavor. Here are some common considerations to help you move through the process.

What Are Your Options?

As a policy signer, you have four different options regarding beneficiaries:

  • Individuals. You can select an individual, or two or three, as your beneficiaries. The designation form allows you to designate specific percentages to each one. Alternatively, you can also list a primary, secondary and final beneficiary. If your primary beneficiary is alive, he or she receives the entirety of the policy. A secondary beneficiary would inherit the allocated funds if your primary beneficiary passes. A final beneficiary would inherit the funds if your secondary beneficiary passes.
  • Trust. Another option is to allocate a trust as a beneficiary. A trust is an agreement that allows an appointed individual (trustee) to oversee assets on behalf of beneficiaries. Experts only suggest naming a trust if your chosen beneficiaries are minors. In this case, you would name a trustee to oversee the funds until your children reached the statutory investment age in your state. Make sure that your chosen trustee will show discernment and care in guiding your benefits to your children’s hands.
  • Estate. If you leave your investments and life insurance policy to your estate, it will be distributed in the manner designated in your will. Many experts endorse following this route, as beneficiary designation forms override wills. However, naming individuals separately on your individual policies means that your beneficiary can skip the long probate process with regards to these accounts, reaching the money with greater ease. If you need help creating a will, turn to a local lawyer who focuses on estate law.
  • Non-Profit. If you would like a charity or non-profit to benefit from your policy, you can list it as a beneficiary on the form.

What Is Best for You?

When you consider how to manage your beneficiaries, think of who would most benefit from the assets and who could handle them responsibly. If you have an elderly relative or young children, you may want to consider opening a trust on their behalf. With some policies, you can also choose to distribute income over time, with long-term payments rather than a lump sum.

There are a few legal realities to take into consideration, too. In most states, spouses receive tax-advantages when added as a beneficiary. This means that your spouse would pay less taxes on the funds from your policy than anyone else you could name. If you are married but choose not to designate your spouse as a beneficiary, you also may need to fill out additional forms. If you ever feel differently about a named beneficiary, you can make an easy change --- this is especially important after any life changes, like divorces or deaths of family members.

If you need help discerning the best individual or group to name on your beneficiary designation form, reach out to a certified financial counselor to help guide you forward.

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