What it is:
A beneficiary is any person or organization that receives assets from a person after that person’s death.
How it works (Example):
A will is a legal document that indicates how a person wants his or her ( and property) to be distributed after death. A will may also describe any wishes for funeral and burial arrangements, and it may designate guardians for minor children.
Wills aren’t the only things that have beneficiaries. Insurance policies also often have beneficiaries (particularly life insurance and annuities).
It is important tothat a testator or insured person can change a beneficiary at almost any time, for any reason, and should keep the original copy of the related documents in a safe place. A copy should also be given to the executor.
Why it Matters:
Naming a beneficiary of your assets is part of the process of estate planning. However, court procedures, called probate, are often required to pass assets from a deceased person to beneficiaries, because the testator is no longer around to sign deeds and other documents necessary to transfer the assets.
Without naming beneficiaries to your financial assets, relatives can spend a lifetime (and their life savings) battling over your assets, friends and nonblood relatives can get entirely ignored, and former spouses could bequeath your assets to their children from other marriages. This may be what you intended, but without an adequate plan, you can never be sure. It can be intimidating, but it is a necessary step to ensuring that your assets end up where you want them, without the interference of the Internal Service or third parties.