Where do you want your assets to go? The way you name your beneficiaries plays a major role in ensuring your money is passed on according to your wishes. Planning ahead can help protect the people you leave behind and make the process easier. This guide will help you understand your beneficiary options, including what happens if a beneficiary passes away before you.
What is a Beneficiary?
A beneficiary is the person or organization you choose to receive the assets in your account when you pass away.
Designating beneficiaries allows for the transfer of your assets directly to the people you select, helping ensure your wishes are followed. Beneficiaries can include:
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Spouses or Partners
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Children
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Other Family Members
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Friends
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Trusts
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Charities or Organizations​
You may name one or multiple beneficiaries and assign percentages to determine how assets are divided.
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Note that if you chose a minor as a beneficiary, you must identify or assign their custodian. If a custodian is not named, the courts will appoint one for you.
Why Beneficiary Designations Are Important
Beneficiary designations help ensure your assets are distributed according to your wishes. In many cases, beneficiary designations allow assets to transfer directly to the named individuals, which can help avoid delays and simplify the process for those you leave behind.
Keeping your beneficiaries current and up to date is an important part of financial planning.
Do you know the beneficiary designations on all of your accounts? If not, maybe it's time for a review?
When Beneficiary Designations Take Effect
Beneficiary designations only take effect after the Account Holder passes away.
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While the Account Holder is alive, they maintain full control of the account and may change beneficiaries at any time.
How to Name and/or Change a Beneficiary
Certain events can prompt a change in Beneficiary decisions. Common times to review your beneficiaries include:
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Marriage or Divorce
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Birth of a Child
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Death of a Beneficiary
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Estate Planning Updates​​​
You can add beneficiaries, change percentages, remove beneficiaries, and/or update beneficiaries after major life events.​
You can review your Beneficiaries at anytime by logging in to your Schwab account.
To update your Beneficiaries, contact your FSM Team for assistance.
Key Roles & Definitions
The Account Holder is the person who owns the account. They control the account during their lifetime, and they can choose and change beneficiaries at any time. Note: Children are not automatically considered beneficiaries.
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The Primary Beneficiary is the first in line to receive the account proceeds when the Account Holder passes away. There can be one or multiple Primary Beneficiaries. Proceeds are first paid to the Primary Beneficiary(ies), and percentages can be assigned.
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The Contingent Beneficiary is the backup beneficiary. Contingent Beneficiaries receive the proceeds only if all Primary Beneficiaries have passed away. They do not receive anything if even one Primary Beneficiary is living. ​
How Beneficiaries are Paid (A Typical Scenario)
In most cases, beneficiary designations are straightforward. When the Account Holder passes away, the account proceeds are paid directly to the Primary Beneficiary(ies) based on the percentages chosen by the Account Holder.
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​In this example, The Account Holder named two Primary Beneficiaries and assigned different percentages. Note that assets don’t need to be split evenly. If no Primary Beneficiaries are living at the time of death, all proceeds are then paid to the Contingent Beneficiary(ies).
What Happens If a Beneficiary Passes Away First?
If a beneficiary passes away before or at the same time as the Account Holder, the way the proceeds are distributed depends on how the beneficiaries are titled. Two common options are Per Stirpes and Per Capita.
Per Stirpes (By Family Line)
the beneficiary’s share will pass down to their children (or descendants) if they are no longer living. Since the money stays in that "branch" of the family, the inheritance stays within that person's family line.
Per Capita (By Person)
the proceeds are divided equally among the remaining living beneficiaries. If a beneficiary passes away before the Account Holder, their share is redistributed among the beneficiaries who are still living.
If no beneficiary is designated, the account will default to the will
and if no will exists, will default to the resident state intestacy statutes.
One Living Beneficiary
For both Per Stirpes and Per Capita
In this example, Beneficiary A is deceased and the Account Holder selected either per stirpes or per capita and the result is the same. Beneficiary A’s three children split that 50% evenly, and Beneficiary B would receive her 50%.
No Living Primary Beneficiaries
Per Stirpes
Each beneficiary’s original 50% share passes down their family line. Beneficiary A’s three children split their 50% evenly, and Beneficiary B’s two children split the other 50% evenly. Nothing is paid to the Contigent Beneficiary.
No Living Primary Beneficiaries
Per Capita
The account proceeds are divided equally among all living beneficiaries at the time of death. As a result, the five children share the account proceeds equally, with each child receiving 20%. Nothing is paid to the Contingent Beneficiary.
Choose Nothing
Without Contingents
None indicates neither per stirpes nor per capita were selected. Children of deceased beneficiaries do not automatically inherit their parents share. There were no contingents.
Choose Nothing
With Contingents
None indicates neither per stirpes nor per capita were selected. Children of deceased beneficiaries do not automatically inherit their parents’ share. Because a contingent beneficiary was named, the account proceeds do not pass to the deceased beneficiaries’ children. Instead, the full account benefit is paid to the contingent beneficiary.
For more complex situations or unique family dynamics, your beneficiary designations may require additional planning. We encourage you to reach out to your advisor, who can help guide you through your options and ensure your wishes are clearly and properly reflected.
Final Thoughts
Review your beneficiaries regularly and update them after major life events, such as changes in marital status, a death in the family, new additions, or children reaching adulthood. Keeping your designations current helps ensure your assets are distributed according to your wishes and can simplify the process for your loved ones.