What is an Absolute Beneficiary?
What is an Absolute Beneficiary?
a beneficiary of a policy that cannot be deprived of their entitlement to the policy without their consent. An absolute beneficiary is often the named beneficiary of a segregated fund or an insurance policy, and you revoke this privilege without their written permission.
How Absolute beneficiary works
When you request a policy such as insurance, and any other financial instrument with a beneficiary clause, you must name a beneficiary. Typically, you have the right to change who benefits from your policy; in the case of an absolute beneficiary, you cannot change the beneficiary unless or until you notify the beneficiary of your plan and get the individual's explicit permission to make the change. Also known as the irrevocable beneficiary, this type of beneficiary applies to insurance policies and employee benefits and trusts that are often transferable to a family member, such as a pension plan. You can also name an absolute beneficiary in divorce settlements or liability cases that involve naming a given person as a beneficiary. This helps to assure the benefiting party since they know that you cannot deprive them of their legally entitled payment of benefits without the party's consent.
This assurance draws its strength because it would be challenging and nearly impossible for you as the benefactor to try later to make changes to the terms and conditions of the agreement related to the beneficiary. Therefore, if you should proceed with caution if you are involved in any contract or settlement that could include the designation of an absolute beneficiary. You should consult a legal expert before proceeding with a legal agreement or settlement that involves the naming of absolute beneficiaries.
Once you are named an absolute beneficiary in an agreement, the other party involved cannot later remove you as beneficiary even in the case of a falling out, disownment, divorce, estrangement, or another form of disagreement or separation. The only "escape clause" would be if you, as the absolute beneficiary, agree to be removed and replaced. However, it is highly improbable that you, or anyone for that matter, would willingly relinquish your claims to benefits or assets to which you are legally entitled.
Example of Absolute beneficiary
Your family consists of your spouse and two sons: Roger and Frank. While drafting out your will, you want to ensure that your spouse, who is a fashion designer and has never worked in an office setting, has sufficient income in the event of your passing.
To achieve this, you set aside a substantial amount of funds in your estate for your spouse and name him or her the absolute beneficiary of those funds. You then divide the rest of your will among your two sons and name one of your siblings as a trustee.
Two years later, you and your spouse get divorced, and you decide to remove your spouse as beneficiary to those funds. However, since you made him or her an absolute beneficiary, you cannot revoke the claim to the funds without his or her explicitly permitting you to do so.