Glossary > Finance > Financial Advisory > Estate Planning

Beneficiary

A beneficiary in finance and estate planning is a person or entity chosen to receive benefits, assets, or proceeds from a financial account, insurance policy, will, trust, or retirement account when the account holder or policyholder passes away.

Example #1

For instance, if an individual names their spouse as the beneficiary of their life insurance policy, the spouse will receive the death benefit in the event of the individual's passing.

Example #2

In another scenario, a grandparent may designate their grandchild as the beneficiary of a college savings account, ensuring the funds are used for educational expenses.

Misuse

Misuse of beneficiary designations can occur when outdated information is not updated. For example, if someone forgets to update their life insurance policy beneficiary after a divorce, the ex-spouse might unintentionally receive the proceeds, leading to conflicts and disputes. It's crucial to regularly review and update beneficiary designations to align with current intentions.

Benefits

Designating beneficiaries helps ensure that assets are distributed according to the account holder's wishes. This process can bring peace of mind by providing clarity on who will receive the assets upon the account holder's death and streamlining the distribution of assets without the need for probate.

Conclusion

Understanding the role of beneficiaries is crucial for individuals engaging in financial and estate planning to safeguard their assets and provide for their loved ones effectively. Regularly reviewing and updating beneficiary designations can prevent unintended consequences and ensure assets are distributed as intended.