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What are Beneficiaries?  The Role They Play in Your Financial Plan

What are Beneficiaries? The Role They Play in Your Financial Plan

March 07, 2022

Beneficiaries play an important role in your overall financial and estate plan.  They are crucial when thinking of the future and whom your assets will go to--things such as money in the bank, retirement accounts, investments, and life insurance policies. Very simply; a beneficiary is the person (or people) you name to inherit what you leave behind. So how do you choose the proper beneficiary, and what does the designation entail? Here’s what you need to know:


Choosing a beneficiary


  • As you consider a beneficiary, narrow down your list. Ask yourself: Does anyone depend on you financially? Are you married? Do you have children? There are no rules, and at the end of the day, it’s completely up to you.
  • Keep in mind that for some assets, there are two types of beneficiaries: primary and contingent. A primary beneficiary is the person first in line to receive the benefit. A contingent beneficiary serves as a backup should your primary beneficiary pass before or at the same time as you.
  • Children under age 18 can be primary or contingent beneficiaries. However, if you pass while they are minors, your assets will transfer to the guardian of the minor child's estate.
  • If you need to change your beneficiary following divorce, remarriage, or after the death of a loved one, you can. Just contact your employer, financial professional, or financial services company, depending on the asset type.
  • If you don’t designate a beneficiary, it may be unclear who inherits your assets, forcing family into a lengthy, expensive, and tiresome probate process.


One more note—beneficiaries don’t have to be a person. Many wills and trusts name charities or organizations as beneficiaries.


Role of a beneficiary


  • Unlike an executor (in the case of a will), a beneficiary has a minimal role in the administration process, regardless of the asset. In most cases, the beneficiary can sit back and wait patiently for their benefit to arrive.
  • However, suppose an executor fails to administer the estate or doesn’t meet the responsibilities and duties. In that case, beneficiaries can and should take action to ensure that they receive their inheritance fairly.
  • Beneficiaries pay nothing to the executor or anyone else to receive their inheritance from the estate.


Choosing the right beneficiary is an essential factor in any holistic financial plan.  It’s also important to review your beneficiaries annually and make any necessary updates. 


Information provided by William Engelhaupt of Engelhaupt Law Firm PLLC, (281) 277-9872.