Choosing a beneficiary is rarely given the thought it deserves. You’re writing your address and phone number, signing and printing your name, and BAM—there it is. Suddenly, you’re making a quick decision in your insurance agent’s office about who receives your hard-earned assets. It looks like an easy enough question. Like your phone number or address, you must complete this section so that you can go about your day.
Of course, selecting your beneficiary should feel like much more than another line on a form. Your decision has the power to affect lives for years to come. Whether it’s insurance, a trust, or a will, there are six things you should ask yourself when selecting a beneficiary. So, before you put pen to paper, let’s chat.
Ask yourself these six questions before choosing a beneficiary:
What are my options? Many assume that they can select only one person as a beneficiary. Actually, you can choose multiple people and designate a percentage for each. You can also allocate your assets to a trust, a charity, or to your estate. Understanding your options is the first step toward narrowing down the appropriate beneficiary for each asset.
What age is the person? If your potential beneficiary is a minor, talk with your financial advisor about creating a trust. Many entities will not issue funds to a person under 18, which could lead to a lengthy process of court dates to designate the funds to a guardian. By creating a trust, you can specify at what age your chosen beneficiary would receive the funds.
Does this person manage money well? You might worry that your beneficiary will not handle your money well. In this case, like designating a minor, it is wise to create a trust. With a trust, you’re able to specify when and how those funds are dispersed. This will help to avoid the tedious probate process.
What if this person were to pass away? No matter the age of the person you choose, you’ll need a contingency plan. If that person were to pass away, who would receive the funds instead? By naming another person, your assets would go to the second person without the need for probate court.
What is my overall goal for this asset? Consider what you want your assets to accomplish. You might wish to pay for your grandchildren’s college, fund a charity, or support your family. There are countless options, all of which can help you determine the most appropriate beneficiary.
Do any state laws apply? Depending on your state, you might have restrictions on who you can name as your beneficiary. Consult legal counsel if you are choosing someone other than your spouse or children to be certain that they are wise options.
What to Avoid When Choosing a Beneficiary
Naming your estate as your beneficiary is an option; however, that choice guarantees that your assets will go through probate before landing in the right hands. To ensure they receive the money without undue time and stress, it’s wise to name them directly.
Changes in your life throughout the years—children, marriage, divorce, business developments—could change the appropriate beneficiary. It’s essential to review your recipients regularly. Without consistent review, an unintended person could receive your assets (an ex-spouse, for example).
Your Financial Advisor Can Help
Choosing a beneficiary affects your loved ones’ lives significantly. A financial advisor acts as your financial ally, talking you through your tough financial decisions and giving you the confidence that you’re making sound decisions. Consult an advisor to ensure that you’re taking the most effective steps while planning your legacy.
Southwestern Investment Group’s team of advisors listens to your financial goals and empowers you to make them a reality. Contact us to schedule a consultation with an advisor near you.
