What do you mean by a designated beneficiary?
A designated beneficiary is someone who inherits the life insurance pay out or the balance of a retirement account (IRA/401k) after the death of the owner. Usually, the beneficiary is a spouse or close family members. However, it can also be a trust, friend or an estate. People who have a retirement plan or have purchased life insurance must designate a beneficiary or the funds will go to the estate causing the need for probate.
A designated beneficiary gets access to the owner’s assets, annuity, or life insurance when the owner dies. It is essential to review the documents periodically to make the changes for marriage, death, birth or divorce.
Often the owner can name several beneficiaries, either naming a primary and secondary beneficiaries or splitting the account multiple ways. The primary beneficiary is the first one to receive the asset’s control. If there are any secondary beneficiaries, they will be the next in line to receive the asset. However, there is a catch to this process. The secondary beneficiary can only receive the asset if the first inheritor predeceases the owner. Or goes missing, or refuses to accept the property right.
These kinds of beneficiaries can be revocable, or non-revocable. If revocable, the owner still has the right to make amendments. If non-revocable, then certain rights cannot be changed or denied to the named beneficiaries.
One of the easiest ways to avoid probate is to ensure you have properly designated beneficiaries on every account you own. Some financial institutions use the terms Pay on Death (POD) or Transfer on Death (TOD). These terms have the identical outcome of designating a beneficiary.