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What’s A Beneficiary?

What's A Beneficiary?

A slick way to leave money to your family and friends…

I kind of lied to you. I know our relationship is built on trust, but when I told you your options for leaving your assets to others after you passed away were just to do nothing, write a will, or create a trust, I didn’t tell you the whole truth. As my cheating girlfriend used to say, “It’s not a lie. It’s just an act of omission.”

So, what is the mysterious fourth option you have when you want to leave your stuff to others after you die?

This option is mind numbingly easy. For your bank accounts and investment accounts, when you open the account, you can tell them where you want the account to go when you die. It can be an awkward conversation. “Welcome to our bank and thank you for opening an account with us. We hope we can serve you for many years to come, but if you croak tomorrow, what should we do with your money?”

Here’s how it works.

Let’s say you have an IRA. You can name whoever you want to get the IRA if you die. You can even name two or three or however many people you want. You can say, “I want 60% to go to my mother, 20% to go to my brother, and 20% to go to the Humane Society.” Bam! Done.

These people you list are called beneficiaries. When you open a new account, you might be asked, “Who do you want as primary and contingent beneficiaries?” Let’s unpack this so it makes sense.

The primary beneficiaries are the people you want the account to go to first – that’s why they are called primary.

But what if you list your best friend as your primary beneficiary, and you both die in a freak and tragic Russian roulette game? Get it? Freak and tragic like it was unexpected to die while playing Russian roulette? You see, it’s not freak and tragic. It’s entirely expected.

Both you and your friend have died together. Now who gets your account? That’s where the contingent beneficiary comes in. So you’d have your friend listed as primary and maybe your sister as contingent. You really want your best friend to get it if you die, but if he’s dead, too, then your sister can have it.

Does this make sense?

There’s one limitation to naming beneficiaries, though. Sadly, this won’t work with your ‘67 Mustang or your house. It only works with bank accounts and investment accounts.

And here’s some good news. Most people will have a will, maybe a trust as well, and will also name beneficiaries on their accounts. It’s not about doing just one of these – you can and should use them all together.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.

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About the Independent Financial Advisor

Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.

Reach us at (949) 305-0500