Life insurance and annuities can bring protection and retirement income that is essential for many people’s financial needs and goals. And when you purchase these items, you gain the opportunity to name beneficiaries who will receive distributions after you pass away.[i] This article provides insight into why you name beneficiaries and how doing so can help protect you and your estate.
Who can you designate as a beneficiary? Typically, you can choose any living person who you’d want to financially benefit from this contractual relationship.[ii] However, you usually cannot name minors as beneficiaries, and the rules and age limits vary by state.[iii] As your life evolves, you will want to revisit your beneficiary designations to help ensure that everything is up to date.
Why do you name them? When you put money into your life insurance and annuities, you gain the protection of those investments. For life insurance, generally the policy will pay out to your beneficiaries and help cover costs associated with any burial and overall daily expenses. The goal is for the money to serve as a safeguard against any income lost as a result of the insured individual’s death.[iv]
With annuities, you have the ability to start taking withdrawals in retirement to provide necessary income. And should you still have value in your annuities after passing away, your beneficiaries receive the distributions.[v]
What happens if you don’t name a beneficiary? If you don’t name a beneficiary to your life insurance and your annuities, upon your death, your family could lose all the money you’ve invested. Your assets could go through probate and leave them directed by the provisions of your will. Additional tax consequences for your estate could also emerge as a result of having no beneficiaries in place.[vi]
How does naming beneficiaries affect your will? Having a will is an important part of an estate plan, so your executors know how to fulfill your wishes and needs upon your death. But, your beneficiaries are unique in this aspect: When you name beneficiaries to your life insurance and annuities, their designations will override any direction of your will.[vii] For this reason, you need to make sure all beneficiary designations are up to date and reflect your wishes today.
Ultimately, naming beneficiaries for your life insurance and annuities is as important as having the financial protection that these investments can provide you. Not only will you help ensure that your family benefits from the invested value of your money — but you’ll also avoid hefty tax consequences on your assets more effectively. If you would like to discuss your beneficiary designations and options, we are happy to talk. Please contact us at (518) 581-1642