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Understanding Beneficiary Designations

It’s important to name your beneficiary and keep the information up to date. Here are some things for you to consider.

Your beneficiary designation could override your will. That’s one reason why it’s critical to name a beneficiary for your retirement plan account(s). If you don’t name a beneficiary, it could mean that your assets become part of your probate estate, which can take a long time to distribute. In addition, whenever you change your will or trust, be sure to talk with your attorney about your beneficiary designations. Be certain that you understand how all of the different parts of your estate plan work as a whole.

If you are married, federal law requires your spouse to be your beneficiary. You will be required to get signed authorization to name someone other than your spouse as a beneficiary.

Name contingent beneficiaries. It’s important to name a “back-up” beneficiary in case your primary beneficiary happens to pass away before you.

Keep your designation updated and review periodically. Review your beneficiary designations regularly and update them as needed, based on a birth, death, marriage, divorce or any other major life event. If you don’t, your assets may transfer to someone you didn’t intend — for example, an ex-spouse or heirs of a deceased beneficiary. And, it’s always a good idea to keep a record of who you’ve named as a beneficiary. Even if you think nothing has changed, periodically check your designations to be certain that everything is in order.

Consider naming a charitable organization as beneficiary. If there’s a cause that’s close to your heart, one option is to leave a portion, or all, of your assets to the organization. If a qualified charity is named as beneficiary, it can take distributions from the assets you leave to them and they may not have to pay income taxes.

Understand the implications of naming minors or disabled adults as beneficiaries. Leaving assets to a minor or disabled adult could require a court to appoint someone to look after the funds. This could be a complicated and expensive process. It may be a good idea to name a trust as a beneficiary. This may prevent any government benefits from being disrupted, when it comes to minors and/or disabled adults.

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