8 minute read

Everything You Should Know about Contingent Beneficiaries

Ever wonder what is a contingent beneficiary and whether or not you need one? We’ll answer those questions and more in our complete guide.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

If you haven’t already done so, creating a Will and designating beneficiaries should be a top priority. While Estate Planning can be complex, there are some basics you can do (like ensuring you’ve handled primary and contingent beneficiaries appropriately) that probably aren’t as daunting as you may think. And once you understand just how easy it is to complete, the peace of mind your planning will provide is worth any of the hesitation you may be feeling about starting the process. 

A big part of your Estate Plan includes deciding who you want to receive some or all of your estate after you pass away. Learn more here, as we discuss the importance of beneficiaries and answer the big question: what is a contingent beneficiary (and why is is just as important as the primary). We’ll also look at what happens when this piece of your plan isn’t properly completed.

What is a Contingent Beneficiary 

A contingent beneficiary is basically just your back up beneficiary. You will name primary beneficiaries for various parts of your Estate Plan, including accounts, investments and policies that are listed in your Trust or Will. Upon your passing, assets will be distributed appropriately per your direction. In the event that any beneficiary predeceases you, cannot be found, or refuses the inheritance, you want a contingent beneficiary named to then be the next in line.

Here are a few of the types of assets you should name beneficiaries for:

  • Annuities

  • Life insurance policies

  • 401(k)s

  • IRAs

  • 403bs

  • Some non-retirement accounts - Transfer on Death (TOD) or Pay on Death (POD) accounts

Primary vs Contingent Beneficiary  

Your primary beneficiary is first in line to the assets you leave from your estate. After a primary beneficiary, the contingent beneficiary is next. Looking at an example may help. 

Let’s say you list your sister as a primary beneficiary to an asset and you list your brother as the contingent beneficiary. Upon your passing, your sister is entitled to any assets that she is named on. Should she pass away before you, or not be able to be located for some reason, or if she refuses what you’re leaving to her, your brother would then move into that primary position and receive the assets. 

Commonly Asked Questions about Contingent Beneficiaries  

By now, the role of a primary vs contingent beneficiary should be fairly clear. Still, there are a few questions that tend to come up when people are trying to complete this part of their Estate Plan. Below we cover some of the most common questions that are asked about primary and contingent beneficiaries.

Do I Need a Contingent Beneficiary?  

Yes. It’s smart to always name a contingent beneficiary. Without this designation, should your primary beneficiary be unable to accept assets passed to them for any reason at all, proceeds would then go back to the estate and end up in the often lengthy and costly process of probate. At that point, using the succession line that states follow according to state law, the courts will step in. If you don’t want to leave your estate up to chance in terms of who gets what, it’s best to name a primary beneficiary along with at least one, if not multiple, contingent beneficiaries. 

Who Should be My Contingent Beneficiary?  

Naming contingent beneficiaries is a personal choice. Can a child be a contingent beneficiary? A spouse? A friend? The truth is, you can leave assets to friends, family members, even charities - there really aren’t any rules as to who should benefit from your estate. The only important part here is it should be clear and obvious what your wishes are, and if you’re leaving anything to minors, you want to address how and when they will receive assets.

You could go the common route of spouse - child/children, with percentages stated if more than one child is named. Or, you can choose anything that makes sense for your family and life dynamics.  

What Happens if There is No Contingent Beneficiary? 

If you fail to name a contingent beneficiary and the primary beneficiary is unavailable or unable to receive the proceeds from any asset, not only is distribution then left up to the courts and state laws, but you’re also increasing the risk of death benefit proceeds going to your estate, which can increase the chance for estate taxes. Should this happen, it’s also very likely that distribution will be delayed.

Can the Same Person be My Primary and Contingent Beneficiary? 

Naming the same person as both a primary and a contingent beneficiary is a common Estate Planning mistake. Since the contingent beneficiary is a back up, it’s important to not name the same person in both roles.    

How Many Beneficiaries Should I Have? 

There is no definitive rule on how many beneficiaries you should have, although some policies or accounts may limit you to a maximum number (for example, 10 per asset). You definitely want to name a primary beneficiary, and you should have at least one, but ideally more than one, contingent beneficiary. If possible, it’s a good idea to discuss your wishes with your beneficiaries in advance. This way, if you need to have conversations about your decisions, you have time to do it, so you can reduce the chance of things becoming complicated after you pass away. 

Estate Planning is unfortunately something that many people resist or put off. But it’s important, as it allows you to safeguard and protect both your legacy and your loved ones. Choosing a primary and a contingent beneficiary ensures your estate and assets will go to those you intend. Failing to complete this important step means you’ll have no control over who ends up with what.

Is it time to update your Will to properly name contingent beneficiaries (or perhaps even start your Will)? Trust & Will has streamlined the process so that you’re protected when you need it most. Check out everything we have to offer