The Guide to Naming Beneficiaries

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naming beneficiaries

What kind of legacy are you going to leave? 

Maybe, your legacy is the memories you make, and the wisdom you impart. Maybe it’s recipes and moral principles. Maybe it’s even a small inheritance. Whatever you intend to leave, you can protect it with insurance—and even leave a greater legacy gift than you may have thought possible. 

Maybe you don’t know exactly what you want…yet you DO have a life insurance policy, and you want to keep as much control as possible. 

That’s why we’re here to make sure that when you put a whole life insurance policy in place, you can leave the greatest legacy possible—without it falling into probate or state courts. And on top of that, you can actually incorporate your intangible legacy!

7 Steps to Naming Beneficiaries

To make sure your legacy ends up exactly where you want it, follow these steps for success. 

Keep Your Policy Current

If you have a life insurance policy, and you’ve named your beneficiaries, it’s crucial that you update it regularly. Once a year is standard, however, there are other circumstances that may require more regular updates.

A death in the family, a divorce or falling out, or a new child may change your priorities. To make sure your money goes where you want it to go, remember to start the process as quickly as possible. A phone call is not always enough—many companies still require paperwork, which can be a long process.

(We know of someone who passed away while trying to remove an ex-spouse from their policy.)

Remember Your Secondary and Tertiary

It may seem like overkill in the moment, however it’s better certain than sorry. For example, what happens if you name your spouse as your primary beneficiary, then you both end up in a fatal accident? 

Where does the money go then? 

To avoid that money being “up for grabs” by creditors or the court, think of who else you would want to receive your legacy. If you’re unsure, you can even name a trust as beneficiary—then the trust will distribute it to your heirs on your behalf. 

You can even use a trust to protect your personal legacy. You can create terms that heirs must follow in order to access funds—such as using the money for education or entrepreneurial pursuits, or even starting their own policy. 

Don’t Name Minors

Of course, you’re likely to want to leave your legacy to your children. However, insurance companies are unable to distribute death benefit funds to minors. Naming minors as a beneficiary is a surefire way to ensure that the money ends up in courts.

Instead, a trust or a guardian can distribute the funds when the child is of age. A trust is a great, third-party option, however it’s not an option for everyone. This is when a trusted guardian is ideal.

(If you can’t afford an estate planning attorney, consider Tomorrow as an online alternative for a simple trust.)

DO NOT Name Your Estate

Naming your estate as your beneficiary is another sure way of handing your money over to creditors, probates, and taxes. 

If there’s no one you can name, a trust is going to be one of your best options. You can instruct a trust to handle your estate, and even give excess money to charity. 

Get Detailed

While YOU may understand what you mean by “my children,” a life insurance company may not. It’s best to be as detailed as possible, so there’s no room for confusion. And we’re not just talking about names—note social security numbers and contact information as well, and update contact info regularly. (This is especially important for those of you with common last names.)

Have multiple heirs that you want to distribute funds to equally? Be sure to indicate whether you want that money divided per capita (per head) or per stirpes (by branch of the family). 

Per capita, for example, would mean that if you have three children, your money would be divided equally among them. However, their children, if they have them, would not get an inheritance. If you want it divided per stirpes, then it would be divided equally among your children and THEIR children. 

Leave Out Government Dependents 

A financial inheritance can disqualify a disabled person, or other government dependent, from receiving benefits. This could include disability benefits, Medicaid, subsidized housing or assisted living.

Why does this matter? It can be disruptive to your loved one’s life, and may subject them to new waiting periods for benefits, or even a waiting list to re-qualify after the inheritance is spent down. You could even force them to move accidentally, due to loss of housing benefits. Likely, that’s not your intention. 

You’re not out of options, however. There’s a trust for that! (Are you sensing a theme?) Using a special needs trust, you can leave money without disqualifying someone from their benefits. A trustee can then help them use that money to pay for things that their benefits don’t cover. 

Your Will Doesn’t Trump Your Policy

Regardless of your will, the life insurance company will pay your death benefit to your beneficiaries. Ideally your will and your life insurance policy will match—when you update one, you should update the other. Just know that if the two don’t match, your insurance policy is the one that will win out in the end.  

What else should you include in your estate planning? The protection of your online assets. Protect myPlans is a service that allows you to put all of your online info in one place, and determine what happens and who will be in control. Otherwise, your heirs can be locked out from your online banking, login codes, and even crypto wallets. 

Always Be In Control of Your Assets

Estate planning isn’t glamorous or even fun—however it’s a crucial step in controlling your money at all times, even when you’re gone. Following these steps will ensure that your inheritance goes exactly where you want it to—without it falling into the wrong hands unintentionally. 

If you’re seeking help to update your policy, increasing your coverage, or have other questions, a Prosperity Economics Advisor can help you. Contact us today to be put in touch with our national network of Prosperity-minded financial advisors. And don’t forget to grab your copy of our latest book, Perpetual Wealth: How to Use Family Financing to Build Prosperity and Leave a Legacy for Generations.

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