Why Naming a Beneficiary Matters

Designating someone as your beneficiary ensures your assets go where you intend them to in the event of your death. It’s one of the most important steps in protecting your loved ones and preserving your legacy.

The Benefits of Naming a Beneficiary

By naming a beneficiary, you give your loved ones access to certain tax advantages. For example, if you designate a spouse or a trust as your beneficiary, the funds you’ve accrued can be withdrawn over a longer period of time, allowing the account to grow tax-deferred.

Without a named beneficiary, assets may lose tax-favored status when passed along.

Avoiding Probate

One of the most overlooked benefits of naming beneficiaries is avoiding probate. Probate is the legal process of distributing assets after death, and it’s often:

• Time-consuming
• Costly
• Potentially unfavorable in tax treatment

Naming beneficiaries allows assets to transfer directly, bypassing this process.

Special Considerations for Spousal Beneficiaries

In many employee retirement plans, the surviving spouse automatically has the right to inherit the account unless they’ve signed a waiver allowing the account holder to name someone else.

Spousal beneficiaries also often have tax advantages compared to non-spousal beneficiaries, which can help preserve more of the account’s value.

Naming Contingent Beneficiaries

It’s good practice to name both a primary beneficiary and a contingent beneficiary. A contingent beneficiary inherits the assets if the primary beneficiary passes away before you. This ensures there’s a clear succession plan.

Per Capita vs. Per Stirpes

On a beneficiary form, you might see the terms per capita and per stirpes. These determine how assets are distributed if a beneficiary dies before you:

• Per Capita: The deceased beneficiary’s share is divided equally among the remaining living beneficiaries.
• Per Stirpes: The deceased beneficiary’s share passes down to their descendants.

Choosing the right option depends on how you want your assets to be distributed among your heirs.

It may also be beneficial to consult with a financial advisor to ensure your investment choices align with your personal financial goals.