Can You Have 3 Primary Beneficiaries? Everything You Need to Know About Multiple Beneficiaries

Have you ever thought about naming more than one person as the main beneficiary of your life insurance or retirement account? Maybe you want your spouse, child, and sibling to all get a share of your money when you die. Of course, you can have three or more main beneficiaries, which is good news.

I’ve been researching this topic extensively, and I’m excited to share what I’ve learned about designating multiple beneficiaries for your financial assets. In this article, we’ll dive into everything you need to know about naming multiple primary beneficiaries the advantages and potential pitfalls, and how to set everything up correctly.

Understanding Primary vs. Contingent Beneficiaries

Before we jump into the details of having multiple primary beneficiaries let’s make sure we’re clear on some basic terms

Primary Beneficiary: This is the person or entity who has first claim to inherit your assets after your death. These are the first in line to receive the benefits.

Contingent (Secondary) Beneficiary: This is the backup person who will receive your assets if your primary beneficiary dies before you or is unable to accept the benefit for any reason.

Tertiary Beneficiary: Some policies allow you to name a third-level beneficiary who would receive the assets if both primary and secondary beneficiaries cannot.

The biggest misconception I’ve seen is that “primary” means you can only name one person – that’s simply not true! You can name multiple primary beneficiaries and specify exactly how your assets should be divided among them.

Can You Really Have 3 Primary Beneficiaries?

Yes, you can definitely have 3 primary beneficiaries. In fact, you can have as many primary beneficiaries as you want for most life insurance policies and retirement accounts. The key is making sure your percentages add up to 100%.

For example, if you want to name your spouse and two children as equal primary beneficiaries, you would designate approximately 33.33% to each beneficiary. Or maybe you want your spouse to get 50% and each child to get 25% – that works too!

In her expert review, Natasha Cornelius, CLU says, “Usually, as many as you want. But check your policy documents to make sure there aren’t any exceptions in the small print.” “.

How to Split Benefits Between Multiple Primary Beneficiaries

When designating multiple primary beneficiaries, you have flexibility in how you divide your assets:

1. Equal distribution: Each beneficiary receives the same percentage (e.g., three beneficiaries each receiving 33.33%)
2. Unequal distribution: You can allocate different percentages based on your wishes (e.g., 50% to spouse, 25% to each child)
3. Per stirpes vs. per capita: These distribution options help determine what happens if one of your beneficiaries dies before you

Per Stirpes vs. Per Capita Distribution

These terms might sound complicated, but they’re important to understand:

• Per stirpes means “by branch” – if a beneficiary dies before you, their share goes to their descendants
• Per capita means “by head” – if a beneficiary dies before you, their share is divided among the remaining beneficiaries

Of the two options, per stirpes is more common for most life insurance and retirement account designations.

Advantages of Having Multiple Primary Beneficiaries

There are several good reasons to name multiple primary beneficiaries:

• Flexibility: You can distribute your assets exactly according to your wishes
• Protection: If one beneficiary can’t be found, the others can still receive their portions
• Estate planning: Having multiple beneficiaries can help avoid probate and ensure your assets go directly to your loved ones
• Financial security: You can provide for multiple family members who may depend on you

If you have three kids, for example, naming all three as primary beneficiaries instead of just one and the others as contingent will make sure that each child gets their share right away, instead of one child having to deal with dividing the money.

Potential Drawbacks of Multiple Primary Beneficiaries

While having multiple primary beneficiaries offers many advantages, there are some potential downsides to consider:

For Life Insurance Policies:

Having multiple primary beneficiaries on a life insurance policy generally works well and has few drawbacks. The insurance company will simply distribute the death benefit according to your instructions.

For Retirement Accounts:

For retirement accounts like IRAs and 401(k)s, there can be more significant issues:

1. Not getting certain benefits: If you name both you and your spouse as beneficiaries on a retirement account, your spouse will not get certain benefits or have the freedom they would normally have.

2. Complication of required minimum distributions (RMDs): Multiple beneficiaries may complicate the distribution schedule for inherited retirement accounts.

3. Potential tax implications: Different beneficiaries might have different tax situations, which could affect the overall tax efficiency.

As Finance Band points out, “It’s generally a bad idea to name more than one beneficiary [for a retirement account], for two reasons. First, if you name your spouse and someone else as beneficiaries, your spouse loses the special benefits and flexibility they would otherwise have. Second, it complicates things.”

How to Properly Designate Multiple Primary Beneficiaries

If you’ve decided that having multiple primary beneficiaries is right for your situation, here’s how to set it up properly:

1. Contact your provider: Reach out to your life insurance company, retirement account administrator, or financial institution

2. Request a beneficiary designation form: Most institutions have specific forms for this purpose

3. List all primary beneficiaries: Include full names, addresses, phone numbers, email addresses, dates of birth, and Social Security numbers (if applicable)

4. Specify distribution percentages: Make sure the percentages add up to exactly 100%

5. Consider per stirpes or per capita designation: This determines what happens if one beneficiary dies before you

6. Name contingent beneficiaries: As a backup in case all your primary beneficiaries cannot receive the assets

7. Review regularly: Update your beneficiary designations after major life events like marriage, divorce, births, or deaths

Special Considerations for Different Types of Assets

Life Insurance Policies

For life insurance, having multiple primary beneficiaries is straightforward. The insurance company will pay out according to your designated percentages. If one primary beneficiary dies before you, their share typically gets divided among the remaining primary beneficiaries (unless you’ve specified per stirpes distribution).

Retirement Accounts (401(k)s, IRAs)

For retirement accounts, the situation is more complex. While you can technically name multiple primary beneficiaries, it might not always be the best approach.

If your spouse is one of multiple beneficiaries on a retirement account, they lose certain benefits they would otherwise have if they were the sole beneficiary, such as:

• The ability to roll over the account into their own IRA
• Potentially more favorable Required Minimum Distribution (RMD) schedules

One alternative approach is to split your retirement account into separate accounts, each with its own beneficiary.

Bank Accounts

For bank accounts, you can set up “Payable on Death” (POD) designations with multiple beneficiaries. There’s typically no limit to the number of POD beneficiaries you can name on a single account.

Real-Life Example: How Multiple Beneficiary Designation Works

Let’s say John has a $500,000 life insurance policy and wants to name his wife as the primary beneficiary (receiving 50%) and his two children as additional primary beneficiaries (each receiving 25%).

If John passes away:

• His wife would receive $250,000
• Each child would receive $125,000

But what if one of John’s children died before him? Here’s where the per stirpes vs. per capita designation matters:

• With per stirpes, the deceased child’s share would go to their children (John’s grandchildren)
• With per capita, the deceased child’s share would be divided between John’s wife and surviving child

Common Questions About Multiple Beneficiaries

What happens if one primary beneficiary dies?

If one primary beneficiary dies before you, what happens to their share depends on your designation:

• By default, their share is usually divided among the remaining primary beneficiaries
• If you’ve designated “per stirpes,” their share would go to their descendants

Can beneficiaries be from different countries?

Yes, you can name someone who lives in another country as a beneficiary even if they don’t have a Social Security number. Just provide enough information (date of birth, address, phone number, email) so the company can contact them.

Should I name minors as beneficiaries?

It’s generally not recommended to name minors directly as beneficiaries. Life insurance companies won’t write checks to minors, and the courts may need to appoint a guardian to manage the assets until the child reaches adulthood.

Better alternatives include:

• Setting up a trust for the benefit of the minor
• Naming an adult custodian under your state’s Uniform Transfers to Minors Act (UTMA)
• Naming a trusted adult with the understanding they’ll use the money for the child

Final Thoughts

Having 3 (or more) primary beneficiaries is absolutely possible and can be a great way to ensure your assets are distributed according to your wishes. For life insurance policies, this approach generally works well with few drawbacks.

For retirement accounts, however, you might want to consider the special benefits your spouse could lose if they’re not the sole beneficiary, or explore alternative approaches like splitting accounts.

Whatever you decide, be sure to review your beneficiary designations regularly – especially after major life events – and consider consulting with a financial advisor or estate planning attorney to ensure your designations align with your overall financial and estate planning goals.

Remember, the most important thing is making sure your hard-earned assets go to the people you care about most in the way you intend!

Have you designated multiple primary beneficiaries for any of your accounts? I’d love to hear about your experience in the comments below!