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What’s a beneficiary?

Updated March 6, 2018

There are many ways you might find in the enviable position of receiving something — enviable unless that something happens to be, say, a mean old cat belonging to an aunt you never met. You could be named as a beneficiary of a retirement account, a life insurance policy or a will. Sadly, in these cases, someone’s got to die in order for you to collect. If you are the beneficiary of a trust, however, the owner of the trust — called the guarantor — may be very much alive, which is the happier way to become a beneficiary. If you are specifically singled out in one of these legal documents, you are what’s called a named beneficiary—though that term’s a little misleading, considering that in certain cases a named beneficiary may not be an individual at all, but rather an institution or the estate of the deceased person.

If the primary beneficiary happens to be dead, the property will go to a contingent, also called a secondary beneficiary, who would also be specified as a backup by the benefactor. If someone fails to name a beneficiary before dying, the estate will end up in court — called probate — where state law will dictate who are the rightful owners of the property, and the closer the relative, the more claim to the property they’ll have legally. This can get complicated if a wealthy person dies without naming beneficiaries and has no close relatives—for those of you holding out to inherit a fortune from a long lost great uncle twice removed, we're sorry to report it's an exceedingly rare phenomenon.

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