Many people buy life insurance, but fail to properly select their beneficiaries. This article provides tips on designating beneficiaries.

You can name just about anyone as your beneficiary. Usually it's a family member. But, you can choose any competent person or an entity, such as a charity. Beneficiary designations can be made by naming people or entities. Or they can be made by class, for example, my children.

Naming specific beneficiaries is usually simple. Use full names to clarify beneficiaries. You can be more specific by referring to birth dates or social security numbers. Designating classes can be more difficult. For example, the designation my children may lead to controversy over whether stepchildren are included. Be specific with class designations.

You can name multiple beneficiaries to receive equal or unequal shares. For multiple beneficiaries, use percentages or some other method of division not based upon dollar amounts. For example, in equal shares. Dollar amounts often become outdated due to policy loans or changing cash values.

You can also select a trust as beneficiary. This can be useful in benefiting minors or disabled persons.

Your primary beneficiary receives policy proceeds first. If this is a person, he or she must be alive when you die. If that beneficiary is deceased, the policy proceeds go your contingent beneficiary.

It's important to name a contingent beneficiary. If you and your primary beneficiary pass away at the same time, your primary beneficiary is presumed to have died first. As a result, you wouldn't have a named beneficiary. The policy proceeds would go to your estate. Having a named beneficiary avoids having your life insurance benefits pass through your estate. This can save potential estate taxes and probate costs.

Naming a minor as a beneficiary is usually a bad idea. Insurance companies normally won't make payments to them. Instead, consider a trust for the minor's benefit. Also, most states have passed some form of the Uniform Transfers to Minors Act (UTMA). Under UTMA, through a proper designation, you can transfer your life insurance proceeds to a custodian for the benefit of minor beneficiaries.

Be sure to update beneficiary designations, if necessary, due to marriages, divorces, births, and deaths.

Focus on two aims in choosing beneficiaries: making sure your designations fulfill your goals and avoiding needless legal controversies. Consult us for more information.

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