In this article, we’re exploring the role of the beneficiary, its meaning, implications, types of distribution, and much more. We will also be answering common questions that we receive about beneficiaries below.
This article is part of our free series on banking, estate planning, and wealth management, including a free detailed guide to opening a private bank account for yourself and your family members.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Beneficiary Meaning
- What Are the Roles of Beneficiaries?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Beneficiary Meaning
The meaning of beneficiary typically refers to an individual entitled to receive an inheritance in estate planning either from a trust, insurance policy, will, financial account, or through another form of asset distribution. The term beneficiary is commonly used interchangeably with “heir”.
There are two types of beneficiaries, a principal beneficiary, and a contingent beneficiary. The principal beneficiary is the named individual entitled to receive distributions. The contingent beneficiary only receives distributions if the principal beneficiary is unable or unwilling to receive the distribution.
When it comes time to distribute assets, per stirpes is the most common approach to distribution while per capita is the alternative. Per stirpes refers to the distribution where the next of kin of the beneficiary will receive an inheritance if they die before the testator of a will or grantor of an estate.
Not surprisingly, a major area of concern for beneficiaries is the tax implications. However, in most cases, beneficiaries do not pay taxes on money or assets that they inherit. That said, this rule does not apply to tax-sheltered accounts (e.g. 401ks) that received contributions that have yet to be taxed.
What Are the Roles of Beneficiaries?
The roles of beneficiaries can vary, depending on whether or not they are also actively involved in the probate process or as an executor. That said, the primary role of beneficiaries is to receive assets that they are intended to inherit from the will, trust, or estate upon the event that triggers the distribution of the assets.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking the meaning of beneficiary. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is an Irrevocable Beneficiary?
An irrevocable beneficiary refers to one type of beneficiary in an insurance policy. The distinguishing feature of an irrevocable beneficiary is that the policyholder cannot change or remove the beneficiary after they have been designated.
What Does It Mean to Be a Beneficiary?
Being a beneficiary means that an individual has been named as the intended recipient of specific assets after a certain event takes place, often the death of an individual. The beneficiary then receives the intended assets in accordance with the distribution outlined in the will, estate, life insurance policy, etc.
Can a Beneficiary Be a Family Member?
Yes, a beneficiary can be a family member. In fact, the vast majority of beneficiaries are family members. This is true whether you are considering the beneficiaries of estates, trusts, wills, insurance policies, or financial accounts. However, it’s important to note that a beneficiary does not need to be a family member.
What Powers Does a Beneficiary Have?
A beneficiary has the power to receive the assets that have been designated to them, refuse the assets that have been designated to them, and in certain circumstances they have the power to receive information about the estate, request certain actions be taken, and even request that the executor be removed.
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