Revocable Beneficiary
A revocable beneficiary does not have guaranteed rights to receive compensation from an entity such as an insurance policy or a trust fund. The policy owner reserves the right to make changes to who receives payment, change the terms of the policy, or terminate the policy without the need of revocable beneficiary consent. Most life insurance policies have this feature. Revocable beneficiaries do not have guaranteed rights to receive compensation from an entity such as an insurance policy or a trust fund. Most life insurance policies name revocable beneficiaries. The latter has guaranteed rights to an insurance policy's payouts unless they agree to their removal from the policy as a beneficiary. Designating a revocable beneficiary is usually the best course of action as it allows you to change the beneficiary on the policy due to unforeseen circumstances. The opposite of a revocable beneficiary is an irrevocable beneficiary, which has guaranteed rights to an insurance policy's payouts unless they agree to their removal from the policy as a beneficiary. As with an insurance policy, the beneficiary of a revocable trust expects to obtain trust assets as designated in the trust agreement.
What Is a Revocable Beneficiary?
A revocable beneficiary does not have guaranteed rights to receive compensation from an entity such as an insurance policy or a trust fund. The policy owner reserves the right to make changes to who receives payment, change the terms of the policy, or terminate the policy without the need of revocable beneficiary consent. Most life insurance policies have this feature.
Understanding Revocable Beneficiary
It is standard to designate children and spouses as beneficiaries of the benefits from a life insurance or trust product. However, the policyholder may choose whomever they would like as the beneficiary.
The policyholder may also name their estate, another trust account, or a charity as the revocable beneficiary. After the policyholder's death, the named beneficiary will receive the death benefit from an insurance product, or gain control of the funds housed in a trust account.
The life insurance policyholder may earmark the percentage of total payout each primary beneficiary receives, the timing of payout, and contingencies to meet before policy payout. A policyholder is free to change both primary and contingent revocable recipients as often as they please.
A revocable trust offers a similar situation with estate planning. The trust — grantor — designates a beneficiary, which they may change at any time. As with an insurance policy, the beneficiary of a revocable trust expects to obtain trust assets as designated in the trust agreement. However, they are not guaranteed anything.
A policyholder must have completed their last will before they can name an estate as the trustee of their policy. Tax accountants and estate planners are instrumental in structuring a sound estate or trust account. The last will and testament is a legal document stating the wishes of the individual for the distribution of property after their death.
Naming Multiple Beneficiaries
A policyholder may name multiple revocable beneficiaries. These recipients can be broken down into primary beneficiaries and contingent beneficiaries. A primary beneficiary has first rights to payouts upon the policyholder's death. However, a contingent beneficiary has rights to the payouts should the primary beneficiary die.
Irrevocable Beneficiary
A revocable beneficiary is the opposite of an irrevocable beneficiary. The latter has guaranteed rights to an insurance policy's payouts unless they agree to their removal from the policy as a beneficiary. Designating a revocable beneficiary is usually the best course of action as it allows you to change the beneficiary on the policy due to unforeseen circumstances. Designation of revocable beneficiaries is vital in cases of divorce and with business partnerships.
If a wife designates her husband as an irrevocable beneficiary of an insurance policy, for example, the wife remains the beneficiary even if a divorce follows. The same scenario may happen if a business lists a partner as an irrevocable beneficiary and later dissolve the relationship. To avoid legal troubles, the wishes of the policyholder must remain paramount, which becomes problematic with an irrevocable beneficiary.
Related terms:
Beneficiary
A beneficiary is any person who gains an advantage or profits from something typically left to them by another individual. read more
Contingent Beneficiary
A contingent beneficiary is a beneficiary who will receive the benefits if the primary beneficiary has died at the time the benefit is to be paid. read more
Designated Beneficiary
A designated beneficiary is a living person who is named as a beneficiary on a retirement account, who also does not fall within the definition of an eligible designated beneficiary. read more
Discretionary Beneficiary
Discretionary beneficiaries are individuals or entities that a grantor names in a trust, life insurance policy, or retirement plan that have no legal proprietary interest. read more
Irrevocable Beneficiary
An irrevocable beneficiary has guaranteed rights to assets in an insurance policy or a segregated fund. read more
Irrevocable Trust
An irrevocable trust cannot be modified, amended or terminated without the permission of the grantor's named beneficiary or beneficiaries. read more
Life Insurance Guide to Policies and Companies
Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. read more
Primary Beneficiary
A primary beneficiary is the first person in line to receive distributions from a trust or retirement account such as a 401(k) or IRA. read more