Quick Tips On Naming Beneficiaries
Its that time of the application process forlife insurancewhen youre being asked to fill out the beneficiary list
. Confused about who should really be on it? Here is a list of quick, helpful tips to help you through the process.
Lots of Room
You will be allowed multiple beneficiaries, so dont panic! This can include all your family members if you wish. You can even mention how much each one is to get. For instance, John Doe can leave his wife Jane Doe 50% of the death benefit, his two sons 20% each and 10% to a charitable trust.
Policy Restrictions
Sometimes, a policy or state regulations may restrict you from making certain changes on your beneficiary list. For example, some group life insurance policies will not allow a charitable trust to be named as beneficiary. Another example where beneficiaries cannot be freely chosen is when some state laws mandate that the spouse sign a waiver form to signal that they have no objection with someone else being made the beneficiary instead of them. Find out what these are before proceeding.
First in Line
You will be expected to name primary and contingent beneficiaries on your list. Primary beneficiaries are those that are entitled to getting the money first. Secondary beneficiaries take their place if they pass away. You can also designate a final beneficiary to take both primary and secondary beneficiaries places if they both passed away.
Take Names
You must name them whenever possible. Avoid naming according to relation as son or daughter, as this can cause trouble later on, like a wife or step children from a second marriage, and other such additions to a family.
Spenders and Savers
When in doubt, pick someone who will be responsible with the money. There are several instances of teenagers who, when they came into a large windfall of money, wasted their years away on fast money and destructive lifestyles. If you need to, set up a trust that will allocate the amount to a child upon reaching the age of 25 or when she decides to go to college (or any other life event that signals responsibility).
Minors
Factor in their age. If they are minors, you do not want to leave the death benefit in their names. Designate a trusted person who will use the money to take care of their needs, like a close family relation. If a minor is named as a beneficiary on a
life insurance policyand the policyholder dies, the child is in the custody of the state until he becomes a legal adult, which is definitely not something you want to happen to your minor children. You can also set up a trust that will help them use the money in your stead. Your lawyer would best advise you how to do this.
Review Your List
Make a mental note to yourself to review your list yearly. Circumstances are always changing around us, including core relationships within our families, like marriage, children, divorce and grandchildren. When choosing to name a step-child or any family members from a second marriage, you should be well aware of how awkward the situation may get. Many parents remember to factor in a double portion of benefits that would come through two sets of parents in the case of a step child.
No People, Please
When naming a charitable organization, educational institution, scholarship fund or religious institution, consult with them on how to do this in a manner that will benefit them the most. Charitable organizations especially will need the heads-up in order to manage the tax repercussions of receiving your monies.
Control the Payout
You can choose to leave the death benefit in installments, rather than a lump sum benefit payable on death. The option to withdraw in a lump sum has no tax consequences while taking the money in installments does. The interest that the total benefit amount will earn when kept in waiting will be tax deducted. Some trust their significant others to be responsible enough to shield the lump sum in faster growing funds. Talk this through with your family to find what they would be most comfortable with. Others are afraid that most of the money will be gone in a few years because of lack of control in spending, so it makes sense to designate the
Take a deep breath, and assess all potential beneficiaries on your list. Sure, choosing a beneficiary is as emotional a decision as it is a logical one. Take your time, but dont take too long. You dont want your loved ones fighting for it in a long legal battle which will be determined by the state.
by: Pat Cassidy
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