Understanding Beneficiary on a Brokerage Account

Susan Kelly

Dec 08, 2021

In today's world, most investors name a beneficiary when they open investment accounts. The idea of appointing someone to take over your brokerage account upon your death may be an excellent estate planning strategy. Funds can be disbursed according to the benefactor's stipulations, or he or she can distribute it directly. Beneficiaries may also be subject to tax consequences.

Investors know the importance of investing through a brokerage account. Without the right broker, you could miss out on important tools, research, and other resources that can help you succeed as an investor. It is important to determine which person is to receive your brokerage account after your death. In many cases, brokerage accounts are not treated as special assets and are passed on to whoever their will specifies. Yet, there are those who find it beneficial to name a beneficiary on their brokerage account so that they can simplify things. It can be a smart idea to name a beneficiary on some brokerage accounts - even if it isn't required for every account.

The beneficiary does not have control over the account until the day of your death. Once the broker receives the death certificate, the beneficiary can claim the assets in the account. A beneficiary can then keep the brokerage account at the same broker, as long as it has been retitled in his or her name. Beneficiaries can also close the account, receive cash or transfer investment assets to another broker in kind.

Beneficiaries can typically be named both as primary and contingent beneficiaries. In the event of your demise, your primary beneficiary will inherit your brokerage account first. Nevertheless, if the beneficiary passes away before you do, or if the beneficiary refuses to receive the inheritance, then the contingent beneficiaries will receive the assets in your brokerage account.

Individual Brokerage Account Beneficiaries Designation

The assets will pass to your beneficiaries if they are already listed on your investment account. If not, probate, a legal procedure for winding up an estate after someone dies, might have to be followed. A state court is often involved in probate proceedings, which your beneficiaries probably don't want to deal with during a challenging time. A beneficiary election form will need to be requested if you own a regular investment account. TOD forms can also be requested if you own a bank account.

If, however, you die without any living beneficiaries, the company distributes the account according to its hierarchy of beneficiaries. You may not be able to control who gets the investment account in this case. In the event that your investment company is unable to find a living beneficiary, the account will be distributed to your estate or trust.

Trust as a beneficiary

Placing your investment accounts in a trust is an alternative to naming individual beneficiaries. Your investment accounts remain in the trust until you pass away. Afterward, the investments are transferred to the beneficiaries in accordance with the trust deed. You can designate a contingent beneficiary to inherit the account if the first beneficiary dies. Through a trust, you can transfer specific investment accounts to beneficiaries or liquidate the accounts and divide the funds that are left.

Benefits of a brokerage account beneficiary

There are a number of advantages to having a beneficiary:

●When you die without a valid will, you may avoid the intestacy laws in your province if you have beneficiary designations. According to these rules, the individuals who will receive your assets and their amounts can be determined. You may not wish these individuals to inherit an inheritance, or you may not wish they receive the amounts prescribed by the rules of intestacy.

●Directly delegating the assets to your beneficiaries (wherever possible) will enable them to bypass the probate process, thereby transferring the assets faster.You may be able to save thousands in legal fees, court costs, and other expenses by avoiding probate.

●In the case of inherited retirement accounts, beneficiaries will typically be entitled to withdraw money from inherited accounts over the course of their lives. It can significantly increase the value of your retirement account, which, in turn, results in the beneficiary paying less in taxes than if the account had not been named.

●The account can be quickly transferred to the heir. This can be crucial for investment strategies that require a quick turnaround, as assets entangled in a court case can complicate managing investments effectively.

The Bottom Line

The ease and convenience of adding a beneficiary to your brokerage account make it generally a smart move for most investors. You can save your heirs a lot of hassle and money by naming a beneficiary, as long as you keep up with those beneficiary designations overtime to make sure that they don't fall out of date.

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