How Do I Select a Beneficiary?

Selecting your beneficiaries is one of the biggest decisions you make when creating an estate plan. Below is some information that will help you decide who to pick as your beneficiaries in Phoenix, Arizona.

What is a Beneficiary?

A beneficiary is a person or entity you legally designate to inherit assets from you. Beneficiaries are named in various estate planning documents, including wills, trusts, life insurance policies, retirement or investment accounts, and transfer on death deeds. A beneficiary is not the same thing as an heir. An heir only refers to family members.

Common examples of beneficiaries include:

• Spouse;
• Children;
• Grandchildren;
• Other family members (parents and siblings);
• Friends; and
• Charitable organizations.

What are the Two Types of Beneficiaries in Phoenix?

There are two types of beneficiaries in Phoenix: primary and contingent.

A primary beneficiary is a person first in line to receive the asset. They are your main choice. A contingent beneficiary (sometimes called a “secondary beneficiary”) is a backup option. They receive the asset if the primary beneficiary is deceased or otherwise unable to receive the benefit. It is always a good idea to name both primary and contingent beneficiaries.

Who Can Be a Beneficiary in Phoenix?

In general, you have complete control to pick whoever you want as your beneficiaries in Phoenix. However, there are a few exceptions.

In Arizona, a will needs two witnesses to be valid. A witness cannot also be a beneficiary for any will executed on or after October 1, 2019. This law was enacted to help lower the risk of fraud.  

If you participate in an employer-sponsored retirement plan, like a 401(k) or 403(b), you have to get written consent from your spouse to name someone other than your spouse as the beneficiary. This rule does not apply to retirement plans not set up through your employer, like IRAs or Roth IRAs.

How Do You Choose a Beneficiary in Phoenix?

Selecting your beneficiaries is a very personal decision based on your unique circumstance. When picking your beneficiaries, it is helpful to consider the following questions:

•  Does anyone depend on you financially?
• Are you married?
• Do you have children?
• Are your children minors?
• Do you want to support any churches or charitable organizations?

When picking beneficiaries, you can name one individual to take total control over the asset or divide the asset between multiple beneficiaries. If you are naming multiple beneficiaries, you should use percentages rather than specific amounts because the account balance can change over time.

Picking your beneficiaries is not a choice that you should lightly. If your beneficiary designations are incorrect, your property will not end up in the right hands.

What Happens if I Name a Minor as a Beneficiary in Phoenix?

In Arizona, you can name a minor as a beneficiary, but they will not have control over the assets while they are under the age of majority. There are three primary methods of leaving property to minor children.

1. Conservatorship. In a conservatorship, the court appoints someone to manage the minor’s property until they turn 18. In your will, you can designate your choice of a conservator. The conservator is required to file annual accountings with the probate court.
2. Custodianship Under Arizona Uniform Transfers to Minors Act. You can leave the property to the minor child in a UTMA account. A custodian will manage the assets until the minor turns 21. UTMA accounts avoid the formal court reporting requirements.
3. Trust. You can leave property to a minor child in a trust. The trustee will manage the property in accordance with the trust provisions. You can include terms for how and when the minor should receive the assets.

Can You Change Beneficiary Designations in Phoenix?

In almost all cases, your beneficiary designations are not permanent, and you can modify them whenever you want. You should periodically review and update designations, especially after any significant life event (marriage, divorce, birth, move, etc.).

However, there are some instances where changing beneficiaries is difficult or impossible. For example, if you create an irrevocable trust, you may be unable to change the beneficiary. Arizona law allows some irrevocable trusts to include modification clauses, which allow for changes at the beneficiary’s discretion.

Your Phoenix Estate Planning Attorney

Nicole Pavlik is an experienced Phoenix estate planning attorney who help you create a comprehensive estate plan. If you have questions about naming beneficiaries and estate planning, call Nicole Pavlik Law Firm today at (602) 635-6176 for a free consultation.