Your estate plan leaves directions for your loved ones regarding how you want to pass your assets to those you leave behind. Some of your assets, such as personal property, may pass under the terms of your will to beneficiaries you name in that document. Other assets, like life insurance and retirement plans, may pass outside your will, but all must go to beneficiaries who are alive at the time of your death – individuals or entities who survive you.
A beneficiary is an individual or entity you designate to receive your assets when you die. Your beneficiaries can include your spouse, children, other loved ones, a trust, or even your estate. You may wish to avoid naming a minor child as a beneficiary since children cannot legally inherit most assets until they become adults. For example, life insurance benefits left to a minor child are typically held until a court appoints a guardian for the child. If you name your estate as the beneficiary of an asset, the asset will then be included in your estate and pass under the terms of your will.
A primary beneficiary is the person or entity listed as the first to receive your asset when you die. For example, if your will names your spouse as your sole primary beneficiary, your spouse will receive all of your estate after creditors are paid. You can name more than one primary beneficiary if you want more than one person to inherit shares of an asset. For example, you can name your three children as primary beneficiaries of your life insurance policy. When you die, the policy proceeds would be split in thirds among your children.
If your primary beneficiaries don't survive you – they're not alive at the time of your death – they cannot inherit the assets you left them. Secondary, or contingent, beneficiaries are a class of beneficiaries who only inherit if your primary beneficiaries predecease you. Depending on state law, your primary beneficiaries must live for a certain number of days after you die to be considered as having survived you so they can inherit. Therefore, your secondary beneficiaries could inherit if your primary beneficiaries pass away shortly after you do. For example, if you named your father and mother as your primary beneficiaries and your brother as your secondary beneficiary, your brother will inherit if your parents pass away before or shortly after you do.
To ensure your beneficiary designations are up-to-date and that they represent your current wishes, periodically review the designations in your will, insurance policies, bank accounts and retirement plans. State laws frequently invalidate designations made to ex-spouses if the designation was made before a divorce, but these laws only remove the ex-spouse; they do not provide a substitute beneficiary designation. State laws or account documents typically describe what happens if you have no surviving beneficiaries—either primary or secondary. For example, Kansas’ Public Employees Retirement System distributes benefits first to your spouse if you name no surviving beneficiary, then to your dependent children, dependent parents, non-dependent children, non-dependent parents, then to your estate.