Beneficiary basics

If you have financial assets and loved ones, this is for you. What you don’t know — can hurt them. 

Understanding what a beneficiary is and why it is essential is key to making sure you leave your legacy as you intended.

What is a beneficiary? 

A beneficiary is a person(s) (or entity such as a trust) who is legally named in documents relating to specific financial assets belonging to you — to be transferred to them as inheritance upon your death. 

It's important you deliberately name either a primary and/or secondary (contingent) beneficiary for your current financial assets such as any life insurance, annuities, retirement savings accounts, brokerage, Health Savings Accounts (HSAs) and other bank accounts.

Primary beneficiary:

This first choice — primary person(s) you assign will be first in line to receive the benefits. A primary beneficiary can be one person or multiple people. The percentage interests for each person must equal in total 100%. For married couples with a 401(k) or similar workplace retirement pension plan, their spouse is automatically the primary beneficiary by default, unless a special signed waiver is in place. This can also apply to HSAs.

Contingent beneficiary:

Secondary or contingent beneficiaries will likely receive death benefits, retirement or HSA funds if the primary beneficiary doesn’t qualify under the policy or have passed away. The percentage interests for each person must also equal in total 100%.

It is not enough to have just a will and here’s why.

Wills still go through probate court and even then, the state will make sure all your debts and taxes are settled first and the inheritance may have income tax implications for the individual(s) further reducing the intended amount you wish to share. This may leave your loved ones with less overall. When you name someone directly as a beneficiary, they will receive the full balance amounts and may bypass a potential tax liability. Consult a tax professional with questions.

Consider this …

If you wish to name a minor child as a beneficiary: 

• Most insurance companies won’t pay proceeds to minors. 
  • Money could go into a state-owned trust until the child becomes an adult or a custodian is named. Even if naming a minor is allowed, there will be more legal red tape to access benefit payments. 
• Retirement accounts and HSAs have similar restrictions. 
  • Neither allows minors to be named beneficiaries; instead, the plan custodian can appoint a guardian to hold and manage the funds until named child becomes an adult.

Consider consulting with a legal professional to navigate the complexities. 

If you wish to name someone with special needs as a beneficiary: 

• Receiving added income for a death benefit, retirement account or HSA can alter the amount of government benefits a person with special needs may be collecting. 
• Consider consulting with a legal professional to navigate this issue with a special needs trust to protect them over their lifetime. 

Life happens and when it does, you will want to review your beneficiaries

If you think naming beneficiaries is just set it and forget it, think again. It’s a good idea to periodically check your designations, especially after major life events such as:

• Marriage or divorce
• Childbirth or adoption
• Loss of a loved one (that was named)

Remember to leave your legacy as you intended and be sure to assign beneficiaries to all your accounts — so your assets will pass onto your loved ones when they need it most.

Watch our Voya Learn video on beneficiaries to learn more.