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What Is a Beneficiary and a Bequest?



When preparing a will, life insurance policy, or retirement account, you designate an individual or organization, known as the beneficiary, to receive the benefits or proceeds when you pass away. A bequest is a gift of your personal property upon your passing to a person or entity by means of a will or trust.

Beneficiaries

There are two types of beneficiaries, primary and contingent. The primary beneficiary is the person or entity you designate to receive the benefit or property, and the contingent is the beneficiary who will receive the benefit if the primary beneficiary has died or cannot be located.

In the event neither beneficiary is available, the benefits revert to your estate and pass to your heirs according to state law. To avoid this from happening, it is a good idea to clearly state what you want to happen to these assets if the named beneficiary cannot be found, is no longer alive, or the business or charity is no longer in existence.

Beneficiaries may consist of the following:

  • Minor children: It is a good idea to set up a trust as your beneficiary to hold funds until the children become adults.
  • Trust: Set up a trust for beneficiaries to receive the benefits at a certain age or as disbursed incrementally.
  • Charities or businesses: Designate a contingent beneficiary in case the named entities no longer exist at the time of your death.
  • Parents: Check with your estate planner to see if naming your parents would increase the size of their estate and result in higher taxes.

Be sure to update your estate planning documents when you accumulate additional assets or if your relationships or family situations change.

Bequests

There are several types of bequests:

  • General: Usually cash or property similar to other items that are distributed.
  • Specific: A designated amount of cash or a specific property.
  • Percentage: A certain percentage of your estate.
  • Residual: A portion of what remains of your estate after other bequests are made.
  • Charitable: A gift serving a religious, scientific, political, educational, or general social purpose. These can reduce estate taxes that might be owed on your estate.
  • Demonstrative: A gift made from a specific source.
  • Executory: A gift that takes effect only when a particular event takes place, such as a child’s 21st birthday or graduation from college.

Learn more about leaving gifts in your will with strings attached

You cannot condition a bequest by requiring the beneficiary to perform an illegal act or by requiring someone to marry or divorce, though you may be able to condition a gift upon the beneficiary marrying someone before a certain time.

In any type of estate planning, it is essential that you contact a trusts and estates attorney so that you can take advantage of tax laws so as not to jeopardize your gifts or other bequests to your intended beneficiaries.