What is a Beneficiary Designation and Who Can Be a Beneficiary?

Posted by David Funes on Mar 2, 2022

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If you are seeking to grow your wealth through property investment, you may want to consider designating a beneficiary for your holdings. Designating a beneficiary before your passing helps ensure your wealth transfers appropriately in an attempt to avoid potential legal struggles over your estate.

Learn more about beneficiary designations, who you can appoint as your beneficiary, and why choosing a beneficiary for your assets is important.

What is a Beneficiary?

A beneficiary is a person or entity designated to receive distributions from an asset upon the death of the owner of the asset. Sometimes multiple beneficiaries are designated for one asset, with each beneficiary receiving a predetermined portion or allowance.

There are two categories of beneficiaries: Primary and secondary. The secondary is also known as the contingent. A primary beneficiary is set to receive the asset before any other beneficiaries. However, if the primary beneficiary is no longer living, refuses the asset, or cannot be found, the asset passes to the secondary beneficiary.

Examples of assets that typically list at least one beneficiary are:

  •       Individual retirement account (IRA)
  •       Trust, such as a Delaware Statutory Trust (DST)
  •       Life insurance policy
  •       Checking account
  •       Annuity

Who Can Be a Beneficiary?

A beneficiary can be any person who is living. This includes your spouse, children, friend, or other family members. A beneficiary can also include an entity, such as a trust, estate, or charity organization.

Many people name their spouse and children as primary beneficiaries. This ensures the transfer of your assets to your loved ones upon your death. However, you may prefer to name a trustee or an entity as a beneficiary, especially if you no longer have immediate family or your estate is split amongst several secondary beneficiaries.

Why Designate a Beneficiary?

The most significant reason to designate a beneficiary is to ensure that your wealth transfers to the people or entity you prefer. Without a properly designated beneficiary, your estate inherits your assets. Depending on the plans you made for your estate, those you love could end up in a legal battle for the assets or lose them to another entity.

For example, if you have built wealth through a real estate 1031 exchange, your replacement property may be held in one or many DSTs. The beneficiaries you designate on the DSTs which hold your replacement property will receive replacement property interests. This may allow your beneficiaries to receive a passive income on your earned wealth.

How to Designate a Beneficiary

The process for designating a beneficiary depends on the asset. Your best course of action is to work with an estate planning attorney to assign a primary beneficiary to your accounts. You’ll want to review your financial assets and remove beneficiaries you no longer want to be listed, such as an ex-partner or deceased person. Then, assign updated beneficiaries to your accounts.

Name Your Beneficiaries to Help Protect Your Assets

Naming a beneficiary helps protect your assets from improper distribution after you pass away. If you are pursuing your wealth through real estate investment, you must designate beneficiaries to your accounts. Doing so helps ensure your assets and those you want to receive them are protected.

 This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. Cash flow or income are not guaranteed.

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