What is a beneficiary?
March 2, 2023 5 min read
When you name a beneficiary, you’re typically deciding who will inherit your assets, like retirement accounts, artwork, real estate and bank accounts, after you die.
Most people and organizations can be beneficiaries, although restrictions may be in place. A beneficiary can take several forms, such as one person, two or more people, or a charity.
- Naming beneficiaries lets you dictate who inherits your assets after you die.
- Investment accounts, bank accounts, retirement accounts and life insurance policies are some of the asset types for which you can name beneficiaries.
- Common beneficiaries include spouses and children.
What types of accounts have beneficiaries?
Types of beneficiaries
There are two main types of beneficiaries: primary and contingent.
A primary beneficiary is the first person or organization that you’ve designated to receive some or all of your assets after you die. The inheritance or death benefits go to the primary beneficiary as long as that person or organization can be located.
A primary beneficiary might be your spouse or children, for example.
A contingent beneficiary—also known as a secondary beneficiary—receives some or all of your assets after you die if the primary beneficiary has died, can’t be found or doesn’t meet the criteria for getting the assets. In other words, a contingent beneficiary is a backup.
A contingent beneficiary might be a best friend or a grandchild, for instance.
If neither the primary nor contingent beneficiary can be tracked down, the inheritance or death benefits go to your estate.
Beneficiaries are designated as one of three types:
- Eligible designated beneficiary
- Designated beneficiary
- Not designated beneficiary
Eligible designated beneficiary
- The dead person’s spouse.
- The dead person’s minor child.
- A disabled person.
- A chronically ill person.
- A person who is not more than 10 years younger than the deceased owner of the retirement account.
A designated beneficiary is a living person who’s been tapped to inherit a financial asset, like a retirement account or life insurance policy, but doesn’t fall into any of the five eligible designated beneficiary categories.
Compared to eligible designated beneficiaries, designated beneficiaries typically have less flexibility with their inheritance, such as withdrawing funds.
Not designated beneficiary
Unlike an eligible designated beneficiary or a designated beneficiary, a not designated beneficiary isn’t a living person. Instead, it’s a nonliving entity like a charity, estate or trust.
Revocable vs. irrevocable beneficiary
Beneficiaries can be either revocable or irrevocable.
You can cancel or change a revocable beneficiary’s access to the inheritance or death benefit. This can be done at any time while you’re alive and for any reason.
A revocable beneficiary can’t interfere with your cancellation or changes.
With an irrevocable beneficiary, you’re essentially locking in the beneficiary’s rights to the inheritance or death benefit. In order to remove that beneficiary, you’d need to get their consent.
Frequently, children are named as irrevocable beneficiaries so that they’re assured of getting the inheritance or death benefit.
How to choose a beneficiary
Choosing beneficiaries is critical to ensuring your assets go to the people and organizations you want them to go to.
Questions you should ask yourself as you decide on beneficiaries include:
- Who would benefit most from receiving my assets? For instance, would your spouse be more financially secure if they inherit your financial accounts than your kids would?
- How would my beneficiaries be affected by taxes? For example, a spouse may enjoy more tax advantages from inheriting a retirement account than another beneficiary would.
- Whom should I name as primary and contingent beneficiaries?
- What do I need to do to name beneficiaries? If you own financial assets, you typically can set up beneficiaries through your accounts—like a retirement or investment account.
- What information do I need to supply about my beneficiaries? Provide as many details as possible when you name a beneficiary, such as their full name, relationship to you, mailing address, phone number, Social Security number and date of birth.
Now, what happens when you don’t name beneficiaries for your assets?
In some cases, those assets may be tied up in probate court. This includes the death benefit from a life insurance policy that lists no beneficiaries and ends up being turned over to the policyholder’s estate. When you don’t name beneficiaries, some or all of your assets may end up in the hands of someone you didn’t intend them to go to.
Beneficiaries in a nutshell
Naming beneficiaries for your financial accounts and other assets can help guarantee that after you die, your assets end up with the people and organizations you want them to end up with. Accounts that typically let you name beneficiaries include retirement accounts, bank accounts, investment accounts and life insurance policies. Common beneficiaries include spouses, children and charities.
With Capital One, you can designate and manage your beneficiaries easily on all of your accounts.