When creating an estate plan, selecting beneficiaries is crucial. This choice can have substantial consequences for your financial legacy and estate plan. It is, therefore, essential to take your time and seek professional guidance to avoid making serious mistakes.
Who is a beneficiary?
A beneficiary is an individual or an entity designated to receive the rights or ownership of somebody else’s property. Most of the time, people issue these benefits as part of an inheritance. You can name them in retirement, insurance, bank, brokerage and other financial accounts.
Designating beneficiaries distribute your assets accordingly after your demise. It is also another easy and reliable way of protecting your loved ones when you can’t do it physically. Take your time to understand the two types of beneficiaries and choose accordingly.
Meaning of a revocable beneficiary
A revocable beneficiary is a person from whom you can withdraw entitlement to your assets or life insurance proceeds. However, this can only happen when you’re still alive. With their approval, you can remove such a beneficiary from your policy for any reason and at any time. Revocable beneficiaries can’t access or make any changes to your policy.
With a revocable beneficiary, you can increase or decrease the portion of the death benefit entitled to them. This type of beneficiary is common as time and circumstances often lead to will changes. Although the freedom to change policies is essential, it might sometimes become complicated.
Understanding an irrevocable beneficiary
An irrevocable beneficiary has complete rights to the policyholder’s life insurance. Even if you make some policy changes, an irrevocable beneficiary will still have entitlement to the death benefits. The only way to remove an irrevocable beneficiary from your policy is if they agree. This highly complex scenario involves more than calling an insurance company with a new beneficiary’s name.
You will need to involve legal practitioners to have the policy changed successfully. Many parents name their children as irrevocable beneficiaries. The problem might, however, arise in cases of divorce where you named a spouse as an irrevocable beneficiary.
The key benefit of an irrevocable beneficiary is its permanency. Therefore, you should take time to identify a reliable person to take that position. Appoint someone who will meet your goals and protect your assets and other interests.