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How to Eliminate Family Fights When Choosing Your Beneficiaries

How to Eliminate Family Fights When Choosing Your Beneficiaries

August 18, 2023

What is a beneficiary?

The short answer: the person(s) who receives your assets when you pass away.

The long answer: A beneficiary is a person or organization that receives benefits from something. In the context of financial assets, a beneficiary is a person or organization that is designated to receive the benefits of property owned by someone else, such as a life insurance policy, a retirement account, or a bank account.

There are different types of beneficiaries, including:

  • Primary beneficiaries: These are the first people in line to receive benefits. If a primary beneficiary dies before the benefactor, the benefits will go to the contingent beneficiaries.
  • Contingent beneficiaries: These are the people who will receive benefits if the primary beneficiaries are unable or unwilling to accept them.
  • Residuary beneficiaries: These are the people who will receive any remaining benefits after the primary and contingent beneficiaries have received their share.

Beneficiaries can be individuals, families, charities, or other organizations. They can be named in a will, a trust, or a beneficiary designation form.

Here are some examples of beneficiaries:[1]

  • The children of a deceased person are the beneficiaries of their estate.
  • A charity is the beneficiary of a life insurance policy.
  • A business partner is the beneficiary of a retirement account.

Most people will decide to leave their estate to one or a combination of three beneficiaries: spouse, children, and/or charity. Whoever you decide to leave your estate to is up to you. However, one of the most important things to keep in mind when naming your beneficiaries is to know your reasoning and be ready to explain it. How assets are distributed can cause tension. Having a detailed plan with clearly explained reasoning can help reduce potential conflicts.

To reduce this risk, it can be helpful to talk through your plan with an unbiased party such as your financial advisor. Their professional experience can help you solidify your plan, as well as build your confidence in making the right decision for your unique situation.

Learn to recognize common mistakes when naming beneficiaries, and how to prevent them.

  1. Naming unavailable beneficiaries (like minors)
  2. Not updating your beneficiaries
  3. Not getting a financial professional's help

One common mistake people can make when naming beneficiaries is to name someone who is "unavailable," such as a minor or a family member with special needs. To avoid issues of unavailability, consider naming a trust as the beneficiary, instead of the individual. The trust will be managed by a trustee, who will be responsible for distributing the benefits to the beneficiaries according to your wishes.

Another common mistake is not updating your beneficiaries. Even if you don't update your estate plan very often, one part to always keep up to date is your beneficiaries. There are many reasons to update your beneficiaries, such as life changes, tax laws, and overall estate planning. If you get married, have a child, or even become estranged from a family member, it is important to ensure that your beneficiaries reflect your wishes. We recommend reviewing and updating your beneficiaries annually. Including this in your annual review with your financial advisor is a great way to stay on track!

Lastly, it is a common mistake to plan your estate and beneficiaries without the help of a financial professional. This can be a costly mistake, as it can lead to assets being distributed in a way that is not in line with your wishes. Financial professionals have the knowledge and experience to help you understand your options and make sure that your wishes are carried out. Also, they can help you avoid making other mistakes that could cost you money or cause difficulties for your loved ones. Read more about Who is Your Trusted Contact by clicking on this link.

Protect your family’s future, set up a meeting with your financial advisor today. To schedule a meeting with your professional at Malecki Financial Group, click on this link to visit our Contact page.


The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

[1] Investopedia: What is a Beneficiary? How They Work, Types, and Examples