Why Name a Beneficiary?

Naming a beneficiary for your structured settlement annuity is an easy way to avoid probate and have your annuity proceeds go directly to your beneficiary.  So what is probate anyway, and why is it something you might want to avoid?

Probate is a court-supervised legal process that first identifies all the deceased person’s assets and then distributes them to creditors and inheritors.  The probate process can take months or even years to complete and the assets in the probate estate can be subjected to claims from creditors and fees payable to the executor or administrator of the estate.

The following tasks are involved in the probate process:

  • Proving in court that the deceased person’s will is valid
  • Inventorying the deceased person’s property
  • Having the property appraised
  • Paying debts/taxes
  • Distributing the remaining property to inheritors as the will directs

If you do not name a beneficiary, all the proceeds from your structured settlement annuity will go directly into your probate estate.  In addition, if you do not have a will or a trust, there can be even more serious complications and lengthy delays settling your affairs.  Naming a beneficiary allows the proceeds from your annuity to completely avoid the probate process and go directly to your heirs in the manner you wish.

There are two types of beneficiaries that can be named in an annuity contract.  Primary beneficiaries are first in line to inherit the benefits.  Contingent beneficiaries only receive benefits when all primary beneficiaries are deceased.  There can be more than one beneficiary of each type and each named beneficiary can be designated to receive a specific percentage of the benefits.  Some people choose to name a class of beneficiaries, by naming a group of people rather than naming each beneficiary individually.

Naming a non-US citizen as the beneficiary of your annuity can make it very difficult for the insurance company to find the beneficiary.  It can sometimes be almost impossible to find a beneficiary that lives in a remote part of the world outside the United States.  It’s also difficult for insurance companies to find beneficiaries that do not have a social security number.  The United States Social Security database can not be used by an insurance company to locate a beneficiary that does not have a social security number.