One of the most important aspects of estate planning is choosing who you’d like to be your beneficiaries. A beneficiary is someone who is named to receive a financial gift from an estate or a specific asset, such as a life insurance policy. If you want to leave all of your assets to one person in your will, you might name them as your sole beneficiary. There are, however, some pros and cons to doing so. You may want to consider working with a financial advisor who can help answer your questions and properly set up your estate to match your desires.
What Is a Beneficiary?
A beneficiary is a person or entity who is designated to receive a benefit from someone else. Beneficiaries are often individual people, but they can also be entities such as educational institutions, religious institutions or charitable organizations.
Naming beneficiaries is an important step in estate planning, as it’s an opportunity to decide who should receive assets from you once you pass away. Depending on how your estate plan is shaped, you might name beneficiaries to your:
Naming a beneficiary ensures that those assets go to that specific person or entity. It’s possible to name multiple beneficiaries to receive assets or choose a sole beneficiary.
What Is a Sole Beneficiary?
A sole beneficiary is a single person or entity that’s designated to receive assets. For example, say you’re unmarried with no children. You want to leave all of your assets to your oldest sibling. You could write a will naming them as your sole beneficiary.
Once you pass away, they would inherit all of the assets from your estate, according to the will’s instructions. They could also inherit assets that require you to name a beneficiary, such as retirement accounts or a life insurance policy.
A sole beneficiary does not have to be a person, however. If you’d like to leave the entirety of your estate to your college alma mater or to your favorite charity, you could name either one as your sole beneficiary instead.
Does a Sole Beneficiary Get Everything?
When someone is listed as a sole beneficiary in a will, trust or another legal document, they’re entitled to inherit all of the assets covered by that document. However, they would not be entitled to assets that have another named beneficiary in place.
For example, say you name your brother as your sole beneficiary in your will and your sister the sole beneficiary to your life insurance policy. Your brother would have a legal claim to all of the assets included in your will, while your sister would be excluded. However, your sister would be able to collect the entire death benefit from your life insurance policy. Neither one would be legally obligated to share the assets they inherit with the other.
Being named a sole beneficiary does not mean the same thing as being a sole heir. When someone is a sole heir, it means that they’re the only living person who is legally entitled to inherit assets from another person under state inheritance laws. For example, you might be your mother’s sole heir if she is widowed, you’re an only child and she has no other relatives living.
Pros and Cons of Naming a Sole Beneficiary
Naming one person or entity to be the sole beneficiary of your will or a trust can simplify estate planning. Instead of deciding how to divide your assets, you can leave it all to a single beneficiary. Your beneficiary can then choose what to do with those assets.
Here’s an example of when naming a sole beneficiary might make sense. Say that you’re divorced with three kids aged 25, 21 and 16. Your oldest child is the most responsible of the three, while the 21-year-old is a spendthrift and the 16-year-old is a minor.
You could name the 25-year-old as the sole beneficiary, excluding your middle and youngest children from your will, assuming state law allows you to do so. If you were to pass away within the year, the oldest child would inherit everything, but you could direct them to reserve a third of the estate each for your other children and manage those assets on their behalf.
That keeps the spendthrift child from running through his or her inheritance while preserving the youngest child’s share until he or she becomes an adult. However, that could leave the sole beneficiary facing a legal challenge if the middle child decides to contest the terms of the will. Direct heirs, even when excluded from a will, generally have the right to contest it in probate court.
If you’d like to avoid that complication, you could set up a trust to go along with your will. You could name your oldest child to be the sole beneficiary and receive assets named in the will and transfer other assets to the trust for the benefit of your other children. A trustee would manage the trust on their behalf, according to your directions.
What Happens If a Sole Beneficiary Passes Away First?
Should you choose to name someone as a sole beneficiary and they predecease you, you’d need to select another beneficiary. The new beneficiary could be just one person or you might choose multiple beneficiaries to inherit your estate.
If you’d like to leave your assets to just one person, it’s still a good idea to consider selecting at least one contingent beneficiary. A contingent beneficiary can inherit assets should the primary beneficiary pass away before you do. You can name a contingent beneficiary to a will, trust or investment account.
Can a Sole Beneficiary Also Be an Executor or Trustee?
The executor of a will is responsible for completing the probate process after someone passes away. The duties of an executor include:
- Inventorying estate assets
- Notifying creditors that the estate owner has passed away
- Liquidating assets to satisfy any lingering debts
- Distributing the remaining assets to the decedent’s heirs or beneficiaries, according to the terms of the will
A sole beneficiary can also be an executor and that’s something you might prefer if you want one person to handle the disposition of your estate after you’re gone. Of course, the person you name as the sole beneficiary must be willing to handle all that being an executor can entail.
A trustee is responsible for managing trust assets on behalf of one or more beneficiaries. Generally, a beneficiary can also be the trustee of a trust. Naming someone as the trustee and the sole beneficiary to a trust can allow them to inherit from you but it also ensures that they’re obligated to follow the terms of the trust that you lay down.
Whether it’s a good idea to name the same person as sole beneficiary and executor or trustee can depend on your relationship with the person and the nature of the assets that are at stake. Talking to an estate planning attorney or your financial advisor can help you decide whether naming a sole beneficiary makes sense.
The Bottom Line
Choosing a sole beneficiary can simplify estate planning, though there are some potential downsides to consider. If you’ve been named as someone’s sole beneficiary, it’s important to understand what that means for you financially in terms of what you might inherit and whether that also conveys any legal responsibility to act as an executor or trustee.
Financial Planning Tips
- Consider talking to your financial advisor about whether it makes sense to name someone as the sole beneficiary of your estate or what to do if you’ve been named a sole beneficiary by someone else. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re interested in establishing a trust, it’s important to understand the different types of trusts that are available. For many people, a revocable living trust may work best as you can name one or more beneficiaries and choose a trustee to manage trust assets according to your wishes. However, you might choose something like a charitable trust instead if you plan to leave the entirety of your estate to one or more charities.
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