Your contingent beneficiary is someone you choose to receive the assets if your primary beneficiary dies before you, can’t be located, or declines their inheritance. In general, multiple contingent beneficiaries can be named.
Contingency beneficiaries can include individuals or entities. Many people select charitable organizations as contingent beneficiaries.
Contingent Beneficiary Definition
A contingent or secondary beneficiary is someone you name to ensure your assets pass to someone other than yourself upon death. They can be used for purchases like life insurance policies, retirement accounts, trusts, and wills, though their rights will be more limited. They’ll only inherit them if your primary beneficiary dies before them or refuses their inheritance.
Assuming you want more than one contingent beneficiary, reviewing and modifying them after significant events, such as marriages, divorces, children, or mourning loved ones who have passed on, is wise. Otherwise, there may be the chance that those not meant to benefit will get them instead.
Contingent beneficiaries can help ensure your inheritable assets pass probate when you die. By designating contingent beneficiaries for assets that must go through probate proceedings, such as retirement accounts and wills, such as minor children, pets, or entities that cannot support themselves after your passing, you can ensure they pass without fighting or litigation from family. You may select anyone as your contingent beneficiary as long as they can legally accept your inheritance – including minor children and those lawfully incapable of caring for themselves posthumously.
As part of your estate plan, including co-beneficiaries and contingent beneficiaries may be beneficial. With contingent beneficiaries, you can designate multiple people who will inherit your assets should any one person be unable to. Some choose close friends, while others leave it to children or extended family.
Consider making a charitable organization the contingent beneficiary for your estate plan; this can help prevent disagreements among family members and may help your loved ones avoid estate taxes in some instances.
Contingent Beneficiary Examples
As part of your estate plan, when creating a will or revocable living trust, you can designate beneficiaries to inherit real estate and financial accounts upon your death. Primary beneficiaries typically take immediate possession, while contingent beneficiaries could receive their inheritance upon an event occurring after you die but before primary recipients can accept them – such as family, friends, or charities.
A contingent beneficiary’s rights are secondary to those of the primary beneficiary and dependent upon certain events preventing them from being able to claim their inheritance, such as predeath, mental incapacity, or legal capacity issues. Sometimes additional conditions must be fulfilled for a contingent beneficiary to claim an inheritance, such as being married to or related to the primary beneficiary.
Contingent beneficiaries can be named on all types of financial accounts, from life insurance policies and retirement funds to wills and trusts specifically created to avoid probate proceedings; the trustee will manage their assets until their contingent beneficiaries come forward to claim them.
Example: A father named his daughter the primary beneficiary on his life insurance policy and several contingent beneficiaries to claim a portion of his assets should he die before her. Each of the contingent beneficiaries would then receive their respective share.
Naming contingent beneficiaries can protect your estate should one or more primary beneficiaries die before you do, cannot be located, or disclaim their inheritance (commonly known as disclaiming). Without them, your property would return to the general estate and go through probate, where a judge will decide who receives what from it – something which may not match up with your wishes.
While it is common to designate one’s spouse as the primary beneficiary and any possible children as contingent beneficiaries, ultimately, the choice lies with you. Be mindful that events in life could alter our plans at any moment!
Contingent Beneficiary Designations
Contrary to your primary beneficiary, who inherits your assets immediately upon your death, a contingent beneficiary does not claim them while you’re alive; their claim only becomes active if your primary beneficiary dies, cannot be located, or declines the inheritance. A direct and contingent beneficiary must be named for inheritable assets such as life insurance policies, estate planning trusts, or bank accounts.
Contingent beneficiaries can include friends, family members, charities, or businesses of your choosing – friends, relatives, charities, or businesses. Furthermore, certain assets cannot be transferred without your permission (for instance, real estate). By setting up contingent beneficiaries early enough and assigning assets accordingly, you may avoid entering probate court, where courts decide who gets what and when.
Your primary beneficiary will get first dibs on your insurance proceeds; however, should they die before you or not accept their inheritance, your contingent beneficiaries may take over as backup plans in various scenarios. Multiple contingent beneficiaries may also be listed.
Contingent beneficiaries can also be used for groups of individuals such as siblings. These beneficiaries will split assets equally by default, but you may wish to add conditions, such as an age requirement. When applying this approach with minor beneficiaries, you’ll require either a trustee or guardian who will hold onto their funds until they reach adulthood or another event specified in your estate plan occurs.
Communication with your contingent beneficiaries and ensuring they understand and accept your inheritance are critical steps in successfully managing their inheritances. Furthermore, regularly review their status – much can change over the years!
If you decide to change your beneficiary, it is advisable to seek advice from an estate and elder law planning professional to ensure compliance with state laws and any potential tax implications.
Contingent Beneficiary Requirements
When creating an estate plan, it’s essential to consider what will happen if your primary beneficiaries can no longer access their designated assets. That is where contingent beneficiaries come into play. These individuals or entities, such as trusts, estates, charities, and businesses, go into the picture as the next in line to inherit specified assets such as money from life insurance policies or retirement accounts, or transfer-on-death accounts.
As part of your contingent beneficiary designation process, you must include all pertinent contact details about them, such as full name and date of birth. You may also wish to have details regarding what percentage of their inheritance they would receive should they survive until your death; and conditions on their estate, such as attaining certain age thresholds or graduating college.
Your contingent beneficiaries can include anyone you choose; reviewing them periodically is wise to keep them accurate and relevant. This is particularly important if a significant change has occurred in your life – such as getting married, divorced, having children, or grieving the death of loved ones – it would be prudent to reevaluate their list as necessary.
Contingent beneficiaries are significant if you own multiple investments or accounts that pay out upon death since failing to establish one could force the funds back into probate and lead to arguments between your heirs over what should go to whom.
Sometimes, you can avoid this conflict by designating a trust as your contingent beneficiary. Once established, its trustees will distribute money according to your estate plan’s instructions; this could help maintain peace among extended family members who may otherwise bicker over your assets. Ultimately, it’s your job to create the best estate plan possible for yourself and your loved ones’ futures. Talk with a financial professional today about making your dreams come to fruition!
