What is a Beneficiary?

A beneficiary is a receipient of your assets upon your death.  Many believe that setting up a will and naming beneficiaries in there is enough to properly transfer assets at the time of your death; however, this is not true.  It is extremely important to understand the limits of a will.  Just because you name a beneficiary on your will, it does not mean that they will receive everything that you intended for them.  Named beneficiaries on accounts will override the will every single time.  You want to be especially careful to designate and update beneficiary information from time to time on your retirement accounts, employer sponsored and individual.  The last thing you want is for that information to be incorrect at the time of your death. 

Retirement Assets & Beneficiaries

To properly disburse your assets, you must name beneficiaries on the following types of retirement accounts:  401(k), Roth 401(k), Traditional IRA, SEP IRA, Keogh, 403(b), Money Purchase Pension Plans, Roth IRA, Rollover IRA, SIMPLE IRA, Profit Sharing Plans, Employer Stock Ownership Plans, Target Benefit Plans, Life & Death Insurance Policies.  Basically, any retirement plan that you individually participate in and the ones your employer sponsors.

If you do not name a beneficiary on these accounts, the state will step in and divide the assets up as they see fit.

Your Estate & Beneficiaries

It is not wise to put your estate down as a beneficiary to your assets.  There are a few issues that come with doing this.  For one, your assets will go through probate which will keep the money away from your family members for longer than you would want and also, it costs quite a bit of money. 

Secondly, the last thing you want is for your estate to to show more assets which would mean that it would have to pay more taxes.  Speak to your tax advisor to get details around your specific situation.

Minors & Beneficiaries

Remember, minors cannot have access to control the assets that were given to them.  If you do not set up a trust or assign a guardian to these funds, the court will name someone or some financial institution as guardian.  Also, minors become adults at the age of 18.  This may or may not be an issue for you to consider but you must think about whether or not you want your 18 year old child having control over these assets.  Consider setting up a trust which will manage the money and disburse it over the longer run to prevent the heir from going on a massive shopping spree.  You should consult with your financial advisor or attorney on how to set the trust up.

Taxes & Beneficiaries

As mentioned earlier, designating the assets to an estate can have negative tax implications.  If your estate inherits over $2,000,000 and your living spouse then passes away, your estate will owe taxes on the inheritance.  On the flip side, if you assets are directly passed along to your spouse, there are no tax implications on the entire amount.  Again, consult a tax professional to make the right choices for your specific situation.


As you can see, there is a rule for everything when it comes to money.  Be careful and consult professionals who know the rules.  Keep your beneficiary information up to date with all of your accounts and be sure to verify with the account administrator that they have the up to date assignments.  If you ask, they will provide you with the latest beneficiary assignments. 

Tim Ord
Ord Oracle

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