Individuals name primary and successor beneficiaries on specific money holdings, including life insurance benefits, retirement plans, bank accounts and certificates of deposit in the case of their death. Circumstances such as a marriage, divorce or death can cause the individual to need to change these beneficiaries. Change of beneficiary forms can assist with this process. These forms can only be used when the individual with the specific money holdings is still alive. These forms are important because they legally trump wills in stating who will receive money upon an individual's death. They also provide the added benefit of allowing these monetary proceeds to bypass the probate process and be received by the beneficiaries faster.
Primary and successor beneficiaries to life insurance benefits, retirement plans, bank accounts and certificates of deposit can be named as individuals, trusts, charities or an estate. If minor children or disabled individuals are listed as beneficiaries, the benefits received will either be placed with a guardian or trust for safekeeping. The court will then require an annual accounting to ensure that the beneficiaries are receiving the appropriate amount of disbursements. Individuals file a change of beneficiary form if the status of the beneficiary changes. For example, if the primary beneficiary is a child who passes away, the insured individual will use the change of beneficiary form to name a living individual or entity as the primary beneficiary.
The primary beneficiaries in a change of beneficiary form receive the monetary proceeds immediately following the policyholder's death. Successor beneficiaries receive the proceeds only if the primary beneficiary has already passed away or the primary beneficiary refuses to accept the proceeds. If a policyholder fails to name either a primary or successor beneficiary, the proceeds immediately default to the surviving spouse. If there is no surviving spouse, the proceeds default to the policyholder's estate. Change of beneficiary forms are used to ensure that there is always a living primary beneficiary to immediately receive the benefits.
Upon an individual's death, the primary beneficiary can refuse the proceeds given to him. Refusals typically occur if a spouse is named primary beneficiary and a child is named as the successor beneficiary. The spouse can refuse to accept the proceeds, which would then directly pass to the child as the successor beneficiary. The family may decide that the child needs the proceeds more than the spouse. These proceeds will also be available faster for the designated beneficiary, because they bypass probate.
State law and employee plans designate the surviving spouse as the primary beneficiary for retirement plans and life insurance policies. The surviving spouse has the option to sign a consent form waiving the right to the proceeds. If this form is signed, the surviving spouse loses all legal rights to those funds. State laws and employee plans do not have designations for successor beneficiaries. If no successor beneficiary is listed, the proceeds will be listed as part of the individual's estate. Change of beneficiary forms are used by insured individuals to ensure that the funds will not end up as part of the individual's estate.
- The Wall Street Journal: Beware the Beneficiary Form: Carolyn T. Geer
- The Estate Planning and Community Property Law Journal: Six Biggest IRA Beneficiary Form Mistakes: Robert A. Ross J.D.
- Employee Benefit News: Nothing Is Simple: Even Designating Beneficiaries Is Complicated: Frank Palmieri
- Forbes.com: Five Rules for Inherited IRAs: Deborah L. Jacobs