A beneficiary is the person or organisation you nominate to receive your assets, money, or property after your death. Losing a loved one is always a challenging time, and it can leave families unsure of what to do with the estate. Naming beneficiaries is a crucial step in estate planning, ensuring that your assets are distributed according to your wishes and providing clarity and peace of mind for everyone involved.
Naming the beneficiaries of your estate can be difficult. There are many different types of beneficiaries to consider and terms to understand. To help you make the best decision for your estate, we’re going to discuss the most common types of beneficiaries and explore how you can ensure your wishes are carried out effectively.
Key Takeaways
- Understanding Beneficiaries: Beneficiaries are the nominated person, people or organisations that receive your assets following your death. They are often spouses, family members, charities or trusts and can receive benefits from different sources (e.g., Wills, life insurance, superannuation).
- Asset Distribution: Assets can be distributed and prioritised in several ways, as per the deceased’s wishes. It is important to review your beneficiary designations regularly as laws and personal circumstances are subject to change.
- Importance of Naming Beneficiaries: Failing to name beneficiaries can lead to Will contests and estate disputes. It is important that you designate your beneficiaries to avoid such disputes and ensure your wishes are executed to the letter.
Understanding Types of Beneficiaries
Knowing the different types of beneficiaries can help us make better decisions about the estate planning process. Below, we explain two of the most important types—primary and contingent beneficiaries—and how they fit into the broader structure of estate planning.
Primary and Contingent Beneficiaries
These two types of beneficiaries are central to your estate planning. Understanding their roles will help ensure your assets are distributed according to your wishes.
- Primary Beneficiaries: These are the individuals or entities who are first in line to receive the benefits from your estate. They are often family members, friends, other loved ones, charitable organisations, trusts established for estate planning, or your estate itself. Primary beneficiaries take precedence over secondary or contingent beneficiaries and will inherit assets as directed in your Will, trust or other estate planning documents.
- Contingent Beneficiaries: These serve as your backup plan. A contingent beneficiary will receive your assets only if the primary beneficiary cannot accept them, has passed away or is otherwise unable to inherit.
Other Types of Beneficiaries
Beyond primary and contingent beneficiaries, there are several other categories that might apply to your estate planning, depending on your assets and goals:
- Life Insurance Beneficiaries: You can name multiple individuals as life insurance beneficiaries, assigning each a specific percentage of the payout. Life insurance proceeds are typically tax-free for the beneficiaries.
- Superannuation Beneficiaries: These are usually the fund members and their dependents. You can choose between binding and non-binding nominations to control how superannuation assets are distributed.
- Will Beneficiaries: Will beneficiaries have the right to be informed about the estate and to receive a copy of the Will. They are typically those named in the Will to inherit specific assets.
- Trust Beneficiaries: Trust beneficiaries are divided into primary and general categories. Primary beneficiaries are those named directly in the trust deed, while general beneficiaries might be future children or grandchildren of the primary beneficiaries.
You should consider the specific rules that apply to eligible beneficiaries for some accounts, such as superannuation. If you need help with establishing a trust, our Family Trust Lawyers in Brisbane can support your wishes.
How Your Assets Can Be Distributed
Your assets can be distributed in two main ways: per stirpes or per capita. Unlike next of kin, which refers to the closest living relatives entitled to an inheritance when there is no Will, these legal terms define specific distribution methods as chosen by the creator of the Will or trust.
- Per stirpes (Latin for “by the roots”) means that if one of your beneficiaries passes away before you, their share will automatically go to their children (your grandchildren).
- Per capita (Latin for “by the head”) means that your inheritance is divided equally among all surviving beneficiaries, without passing anything to the descendants of a deceased beneficiary.
For example, let’s say you have a life insurance policy worth $150,000 and name two beneficiaries: your son Alex and your daughter Mia. If both are alive when you pass away, they will each receive $75,000 under per capita distribution. However, if Mia passes away before you and has children, her share would not go to her kids—instead, Alex would receive the entire $150,000 because the inheritance is divided equally among the surviving beneficiaries only.
This approach gives more flexibility in allocating your assets but may not align with your wishes if you want to account for the descendants of a deceased beneficiary. Be sure to review your beneficiary designations regularly, as laws and personal circumstances can change.
Keeping beneficiary designations current is one of the most vital parts of estate planning. These designations override a Will’s instructions, which makes it essential that you keep them updated.
Why Do I Need to Name a Beneficiary?
Naming beneficiaries is a vital step in protecting your legacy. It ensures you control what happens to your money and assets after you’re gone and makes everything clear for everyone involved. It’s a simple step that is often overlooked, but one that can substantially reduce stress for your loved ones.
Here’s what you gain by naming beneficiaries:
- Your beneficiaries receive assets within 10 business days after submitting proper documentation
- Assets skip probate, which saves time and money
- Beneficiaries avoid estate litigation and Will contests
- Asset distribution stays private, unlike a Will, which becomes a matter of public record
Failing to name beneficiaries can create serious problems. If there are no designated beneficiaries, those assets become part of your general estate and will be distributed according to your Will or, if none exists, the applicable intestacy laws. This requires court involvement that can drag on for months, sometimes even years, if family members dispute the distribution. Clear beneficiary designations help keep the peace in the family, thereby preventing disputes and making your wishes legally binding.
Life changes—such as marriage, divorce or having children—should trigger a review of your beneficiary designations. Beneficiary designations on life insurance policies and retirement accounts take precedence over instructions in your Will. Keeping these designations current ensures your assets go to the right people. Outdated designations might leave assets to unintended recipients, such as former spouses.
Talk to FP Lawyers for Professional Advice on Naming a Beneficiary and Estate Planning
Naming your beneficiaries is one of the most important steps in the estate planning process. It provides clarity and security while minimising potential contests after you’re gone. If you want to ensure that your assets will go to the right people, you’ll need to work with a professional estate lawyer.
Our Wills and Estates Lawyers in Brisbane provide comprehensive Wills and Estate Planning services that are designed to offer peace of mind at the most trying times in your life. When you work with our experienced Will lawyers, we will help you develop an estate plan, record your wishes and ensure your loved ones are always provided for.
Contact us today if you’re ready to manage your future with a professional estate planning service.
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