If you want to designate a friend as your beneficiary, be sure to check with your insurance company or directly with your state. In some states, beneficiaries who aren't relatives need to have what's called an “insurable interest in your life” at the time you take out the policy.
Yes, you can name anyone you want as a beneficiary of your insurance, subject to whatever limitations the insurer might have. The insurable interest issue only comes up in regards to someone buying insurance. So your friend can't buy his own life insurance policy on your life.
Can anyone be named as a beneficiary? Your beneficiary can be a person, a charity, a trust, or your estate. Almost any person can be named as a beneficiary, although your state of residence or the provider of your benefits may restrict who you can name as a beneficiary.
Ineligible Beneficiaries: Minors: Generally, minors (individuals under the age of 18 or 21, depending on the jurisdiction) cannot be named as direct beneficiaries of a life insurance policy. In such cases, a trust or custodian may be designated to manage the proceeds until the minor reaches the age of majority.
An eligible designated beneficiary (EDB) is always an individual. An EDB cannot be a nonperson entity such as a trust, an estate, or a charity. The five categories of EDBs include: A surviving spouse.
Estranged relatives or former spouses – Family relationships can be complicated, so think carefully if an estranged relative or ex-spouse really aligns with your wishes. Pets – Pets can't legally own property, so naming them directly as beneficiaries is problematic.
BENEFICIARY - A person named to receive property or other benefits. CODICIL A supplement or an addition to a Will. It may explain, modify, add to, subtract from, qualify, alter, restrain or revoke provisions in a Will. It must be executed with the same formalities as a Will.
Writing a will and naming beneficiaries are best practices that give you control over your estate. If you don't have a will, however, it's essential to understand what happens to your estate. Generally, the decedent's next of kin, or closest family member related by blood, is first in line to inherit property.
If you've lost a family member or close friend, you may be listed as a beneficiary without even knowing it. Suppose the deceased didn't have a partner or children to name on their policy; they might have branched out to other relationships when choosing the beneficiary of their life insurance policy.
For example, if a person names their estate as a beneficiary of their life insurance policy, not only does this put the asset into the jurisdiction of the probate court, but it also subjects the funds to your creditors and may be used very differently from what you had in mind.
You might want to assign multiple people or entities as your primary beneficiaries. If one of them passes away or no longer exists, the remaining beneficiaries will receive the payout.
Retirement accounts
Although IRAs have no special provisions for naming non-spouse beneficiaries, you may name other individuals. You may also specify contingent beneficiaries, who will inherit the assets should a primary beneficiary pass away first.
You can name anyone (except for your employer in a group term life policy) as the beneficiary of your life insurance policy. Many people choose a family member or child, but that's not required. You can also name a charity or a trust.
You can leave a gift in your will to whoever you wish. This typically includes family, friends, and charities that you wish to benefit from your legacy. These are your beneficiaries.
This means that an executor can override a beneficiary's wishes if those wishes contradict the expressed terms of the will, do not comply with applicable laws, and the executor acts in the best interest of the estate and its beneficiaries.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.
Regardless of what your will says, whoever is named as the designated beneficiary on each account will receive that asset.
A person also need not be related to the insured to be named as a beneficiary; California law allows policyholders to designate anyone they want to be a beneficiary.
Note that the preferred beneficiary status does not apply to siblings.
Surviving Spouse and Child Beneficiaries. If you are married and have kids, you will likely name your spouse and children as policy beneficiaries. The death benefit you leave them can be a significant financial change.
Having a minor as a beneficiary has its own special issues. A minor cannot inherit directly until they reach the age of majority, so unless you want the probate court to appoint a conservator for their assets, it's advisable to set up a trust for the minor instead.
Beneficiaries of retirement plan and IRA accounts after the death of the account owner are subject to required minimum distribution (RMD) rules. A beneficiary is generally any person or entity the account owner chooses to receive the benefits of a retirement account or an IRA after they die.
If you are the beneficiary of a life insurance policy and you owe the IRS, the IRS can seize those proceeds. Additionally, if you have a life insurance policy with no beneficiary named and you owe the IRS, the IRS can seize the policy funds before they are distributed to your next of kin.