How to choose a beneficiary: A quick guide

Have you ever watched movies where the wealthy uncle meets his end without leaving a Will, setting off a family feud that rivals a reality TV drama? It’s like a plot twist that could give any non-scripted show a run for its money! You can’t help but think, “I wouldn’t leave my family with that mess.”

Perhaps then it might be time to ensure your estate planning provides for the beneficiaries you want.

But what exactly is a beneficiary, anyway? Are there any unique rules when it comes to making that choice? When is the perfect time to name one?

Maneuvering through the maze of financial responsibilities for yourself and your loved ones might feel like trying to solve a puzzle – but worry not! We are here to demystify the legal lingo, present you with straight-up facts, and discuss all potential future scenarios with you so you can confidently select your beneficiaries when the time is right.

What is a Beneficiary?

A beneficiary is someone who receives a gift from someone else when they die. You name this beneficiary in a legal document like a Will, Trust, Life Insurance Policy, or Superannuation Account. Here are some options for individuals and organisations you can designate as your beneficiary:

  • An individual or several individuals;
  • The appointed trustee of a trust you’ve established;
  • A charitable or nonprofit organisation;
  • A minor; or
  • Your estate.

When would you need a Beneficiary?

You select a beneficiary to ensure they inherit the assets you want them to. Here are a few examples:

  1. In a will, a person nominates who will get their things, like money, items, or property, when they pass away.
  2. In a trust, someone (like a lawyer) holds onto money or property for the benefit of the named beneficiaries.
  3. People with life insurance or superannuation accounts nominate the designated beneficiary of the proceeds of the policy when they die.
  4. Retirement accounts, like savings for when you’re older, can also have beneficiaries. These are the people who get the money in the account if the account holder passes away.

Types of Beneficiaries

There are three categories of beneficiaries: primary, contingent, and residuary.

  • A primary beneficiary is initially specified to inherit your named asset upon your passing.
  • A contingent beneficiary stands as the backup to inherit your assets if the primary beneficiary is no longer able to in the first instance.
  • Meanwhile, a residuary beneficiary is entitled to any assets that may not have been specifically designated for another beneficiary.

Why would you need a Beneficiary?

  • Security: You work hard for your money and want to ensure your loved ones are financially secure when you’re no longer there.
  • Clarity: Naming beneficiaries makes your wishes very clear and legally binding. It helps prevent family disputes and maintains family harmony.
  • Speed: When you name beneficiaries in your Will or for other assets, it helps your family receive their share faster and assists in bypassing lengthy legal processes.
  • Control: Naming beneficiaries allows you to still have a say in determining who gets your money and assets even after you have passed.

So, naming beneficiaries is not just about securing your loved ones’ financial future but also about avoiding conflicts, expediting the distribution of assets, and maintaining control over your legacy.

How to Choose a Beneficiary?

When choosing a beneficiary, it is wise to consider the following:

  • Who relies on you financially, like your spouse or dependents?
  • People outside your immediate family, like parents or grandchildren, who may also depend on you financially.
  • Who will manage money for minor children and should there be any conditions on when your beneficiaries can access your assets?
  • Think about preserving family assets, supporting charities, or leaving heirlooms.

Whilst the concept may be overwhelming to think about, Hunter Legal can answer any queries you have and explain alternatives that may best suit you and your circumstances. If you require any further information please contact us to speak with one of our legal team on 1300 224 828 and let us make it easy for you.

Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal or financial advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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