What is a beneficiary and how to add one to your account
Editorial staff, J.P. Morgan Wealth Management
- A beneficiary is an inheritor of your wealth.
- For the most part, you can add a beneficiary to any account you own, including checking, savings, investment and other accounts.
- You can name different beneficiaries to different accounts, multiple beneficiaries to a single account or a single beneficiary to all of your accounts.
If you’ve ever set up a life insurance policy, you’ve probably been asked who your beneficiary is. In other words, who do you want to receive the payout when you pass away?
While it makes sense to designate a beneficiary for your life insurance, you should consider designating one for all your financial accounts.
Read on for a general overview of beneficiaries – who they are, why they’re important and how you can designate one or multiple beneficiaries.
What is a beneficiary?
A beneficiary is a person or entity you select to inherit ownership of some or all of your assets after your death. Assets are things like property, retirement accounts and insurance policy benefits, among others.
While you can designate beneficiaries to a wide range of assets, it’s most common to designate beneficiaries for financial accounts. These accounts may have a straightforward process for naming beneficiaries.
You can designate different beneficiaries for each of your assets, or you can choose a single beneficiary to inherit your entire estate.
Is naming a beneficiary different from having a will?
Those organizing inheritance plans often ask whether naming beneficiaries is different from having a will. The answer is yes – while both methods pertain to the distribution of a person’s assets after their death, they are two different legal arrangements.
A will is a legal document that outlines how you want your assets distributed on your death. Unlike beneficiary designations, assets distributed through a will typically go through probate, which is a legal process through which the will is validated, and the estate is settled under court supervision.
Adding a beneficiary to specific financial accounts or insurance policies allows assets to be transferred directly from the account or policy upon your death without having to go through the probate process, even though the assets are part of your estate.
Because these decisions have estate planning consequences, you should consider speaking with a legal professional who advises on trust and estate matters.
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What are the types of beneficiaries?
There are two different types of beneficiaries. A primary beneficiary is the first person or entity to which your designated assets will go after your passing.
If the primary beneficiary is unable to inherit the assets – because the beneficiary has also died, cannot be found or outright refuses the inheritance – the assets will instead be passed on to a contingent beneficiary, also known as a secondary or backup beneficiary.
Who should you designate as a beneficiary?
Deciding who to designate as a beneficiary can be simple or complex, depending on how many people you’d like to leave assets to, among other factors.
If it’s just you and your spouse, it may be as simple as naming the latter as the beneficiary on all your accounts. If you and your spouse have children, deciding who gets what may be more challenging. There may be statuary distribution requirements for spouses, so you should make sure you get appropriate guidance when designating beneficiaries.
It’s important to note that you do not have to be related to your beneficiary – you can designate a loved one or anyone you choose. You can designate entities as beneficiaries, and these can include trusts, charities, schools and other organizations.
You can also name multiple beneficiaries to a single account. For example, you could name both a primary and a contingent beneficiary, in case something were to happen to the primary. You can also add multiple primaries; these beneficiaries either split the assets equally or receive predetermined percentages. Essentially, the account can be distributed however you see fit – between as many people or entities as you’d like.
Here are a few more things to keep in mind when designating beneficiaries:
- If the beneficiary is a minor, consider leaving the money in a trust so it can be managed responsibly until the beneficiary reaches the age of distribution that you select. A minor’s funds can be managed by a custodian – that is, by a designated parent or other adult, or by a government-approved individual – until the minor reaches the age of majority.
- If someone you would like to add as a beneficiary is disabled, you should know that inheriting money could impact the individual’s eligibility for disability benefits. Consult a lawyer or tax professional to fully understand any implications.
- Finally, if you have a partner to whom you are not married, it is especially important to map out your retirement and estate planning. Doing so will provide your family with clarity and peace of mind.
Which assets can you designate a beneficiary for?
You can add beneficiaries to a variety of assets. Here’s a list of common account types for which beneficiaries can be designated:
- All standard bank accounts (checking and savings)
- Investment accounts
- Retirement accounts, such as 401(k) and individual retirement account (IRA) plans
- Life insurance policies
- Annuities
Do you need a beneficiary?
Adding a beneficiary so that assets pass outside of your estate can be an important part of your wealth transfer plan. If you don’t add a beneficiary, the assets will become part of your estate and be distributed according to your will, though some accounts, like IRAs, have default beneficiaries in their agreements.
Without the designation of a beneficiary, the distribution of your assets, including your investment accounts, may be decided on in court. Designating appropriate beneficiaries for your assets is a critical part of a solid wealth strategy.
What are the benefits of having a beneficiary?
Beyond the obvious advantage of being able to decide who inherits your wealth, designating a beneficiary for your assets has several additional benefits. These include:
- Maximizing convenience: When you pass away, your accounts will transfer to your named beneficiaries with minimal fuss and confusion.
- Avoiding probate: Accounts with a beneficiary can bypass probate, meaning they won’t be tied up in lengthy legal proceedings to determine the distribution of assets. If it makes sense for your overall wealth strategy, adding beneficiaries can be a simple and cost-effective way to ensure the transfer of your assets as you see fit. Given the potential complexities and implications, however, you may want to work with legal counsel to confirm that your beneficiary designations align with your estate planning goals.
- Ensuring clarity: Designating account beneficiaries clarifies how your assets are to be distributed when you are gone, ensuring that specific parties receive precisely what you want them to.
How do you add a beneficiary to your accounts?
The exact process for designating beneficiaries varies by financial institution and account type, but there are a few common steps:
- Review your accounts: First, you’ll want to review which of your accounts you want to add beneficiaries to. Consider checking accounts, savings accounts, investment accounts and insurance policies.
- Gather necessary information: For each beneficiary, you’ll generally need to provide the full legal name, date of birth, Social Security number and contact information. Again, the specific information required will vary by institution.
- Do the paperwork: You’ll likely need to fill out some beneficiary designation forms with your institution, whether that’s a bank, brokerage, insurer or other entity. While these forms can usually be completed online or over the phone, some institutions require mail-in forms or even an in-person visit to a local branch to confirm.
- Confirm designations: After you’ve submitted the necessary paperwork, follow up with your institution to ensure the beneficiary nomination was properly processed and approved.
- Review as needed: You may want to periodically revisit your designations to confirm those named as beneficiaries are still the parties you’d like to inherit your assets. It’s especially helpful to review your beneficiaries after major life events, such as getting married, getting a divorced or having a child.
Designating beneficiaries is generally easy to do, but certain situations can complicate the process. Both state and federal laws can impact estate planning, so it’s critical that you consult with a legal professional to determine what’s right for you.
The bottom line
You can add beneficiaries to a variety of accounts, from checking and savings to investment and insurance – and just about everything in between. Naming beneficiaries allows your assets to pass directly to designated individuals and entities, reducing the probability of a drawn-out probate process.
To better understand how to add a beneficiary to your accounts, visit the website of your financial institution. If you have a J.P. Morgan Wealth Management investment account, you can designate or update a beneficiary by going to the “Profile & Settings” section of the Chase Mobile® app or desktop version of chase.com.
Frequently asked questions about beneficiaries
Your beneficiary can be anyone to whom you wish to pass your assets after your death. Some common choices include spouses and partners, children, other family members, close friends, and even organizations and charities. Also keep in mind you can name more than one beneficiary.
A contingent beneficiary is the backup to your primary beneficiary. If the primary beneficiary can’t accept the inheritance for whatever reason (including premature death or refusal to accept), the assets in the account will instead pass to the contingent beneficiary.
Yes, you can add a beneficiary to various accounts, including checking, savings and retirement accounts. You can generally do this online via your bank’s website or app, or in person at a local branch.
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Editorial staff, J.P. Morgan Wealth Management
