In this article, we’re exploring the topic of the “irrevocable beneficiary”.
This will include a discussion about what an irrevocable beneficiary is, how it is different from a revocable beneficiary, and answers to common questions on the topic.
This article is part of our free series on private banking and inheritance planning, ranging from Liechtenstein private banks to expat wealth management, which you can click here to access right now.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Irrevocable Beneficiary
- Life Insurance Policy
- Irrevocable vs Revocable Beneficiaries
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Irrevocable Beneficiary
Irrevocable beneficiary refers to an individual or entity that will receive assets from a financial mechanism like a life insurance policy or fund contract. As the name suggests, the beneficiary on these policies is irrevocable. However, there is one situation in which a beneficiary can be removed, which is when they freely and contractually agree to give up the assets to which they are currently entitled.
Life Insurance Policy
Life insurance policies are attributed to an irrevocable guarantee that the funds from the life insurance policy will go to the intended individual. Even if the individual initiating the life insurance policy wants to change the beneficiary, they will not be able to when using this type of beneficiary. Instead, the only way this kind of beneficiary can be changed is with the beneficiary’s written consent.
Alternatively, if you’re starting to look into the different approaches of estate planning and want to learn the difference between a will and a trust, you can click this link to get your answer.
Irrevocable vs Revocable Beneficiaries
The main difference between irrevocable beneficiaries and revocable beneficiaries is that irrevocable beneficiaries cannot be changed while revocable beneficiaries can be changed.
Irrevocable Beneficiaries
In other words, if an individual purchases a life insurance policy and selects an irrevocable beneficiary, they will never be able to change the beneficiary unless the beneficiary agrees.
Revocable Beneficiaries
On the other hand, if the individual purchasing the policy names a revocable beneficiary, then they will be able to change the beneficiary without the beneficiary’s involvement.
If there is an executor involved, it’s important to understand the executor’s legal obligations and responsibilities, but also what an executor cannot do, which you read about by clicking this link here.
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Is an Irrevocable Beneficiary a Primary Beneficiary?
Yes, an irrevocable beneficiary is a primary beneficiary in the case of an insurance policy. In other words, in the case of the death of the individual for whom a policy has been obtained, the individual named as this kind of beneficiary will be the first to be paid, ahead of any other beneficiaries.
Can an Irrevocable Beneficiary Be Changed?
No, an irrevocable beneficiary can not be changed without their consent. In other words, the only way to remove this kind of beneficiary is to have them agree. In doing so, the beneficiary will give up their rights as a beneficiary presently.
Frequently Asked Questions
Below are three of the most common questions we receive from people looking into this topic. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
How Can I Remove an Irrevocable Beneficiary?
How you can remove an irrevocable beneficiary ultimately depends on the beneficiary. More specifically, whether they named individual or entity is willing to be removed. In other words, in order to remove this kind of beneficiary to be removed, they will have to agree to give up their rights to the payout currently attributed to them. Importantly, this is the only option for removing this kind of beneficiary.
Why Would I Want an Irrevocable Beneficiary?
Why you would want an irrevocable beneficiary can range from a tax efficiency and estate planning. Likewise, parents or grandparents trying to make sure certain financial milestones may choose this type of approach in order to provide future support. For example, by naming an estate planning vehicle like a trust as this kind of beneficiary, an individual can ensure that money is available for certain wishes to be carried out.
When Should You Choose Irrevocable Beneficiaries?
When you should choose irrevocable beneficiaries will depend on your specific objectives and personal situation. However, this type of beneficiary is commonly seen in situations where a person has a legal obligation to fulfill payments. For example, these situations may include alimony or paying for dependent children.
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