A beneficiary is a person or entity designated to receive assets or other benefits from a will, trust, insurance policy, retirement account, or other financial arrangement.
What Kinds of Beneficiaries Are There?
There are three types of beneficiaries:
1. Primary Beneficiaries
First in line to receive benefits.
2. Contingent Beneficiaries
Receive benefits if the primary beneficiaries are deceased or unable to inherit.
3. Residuary Beneficiaries
Receive any remaining assets after specific bequests are distributed.
What Rights Do Beneficiaries Have?
Each beneficiary has the right to
- be informed about the existence of the will, trust, or other arrangement;
- receive distributions as specified in the Will;
- receive information about the administration of the estate or trust; and
- petition the court if they believe the executor or trustee is mismanaging assets
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Responsibilities:
- To provide necessary information to the executor or trustee.
- To pay any taxes due on inherited assets or distributions.
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Considerations:
- Beneficiary designations on accounts like IRAs or life insurance policies typically override will provisions.
- Some types of beneficiaries (like charities) may have tax advantages.
- Special needs beneficiaries may require careful planning to avoid disqualification from government benefits.
Naming beneficiaries is a crucial part of estate planning. It’s important to review and update beneficiary designations regularly, especially after major life events like marriages, divorces, births, or deaths in the family.