Estate planning plays an important role in everyone’s life to ensure that everything you’ve worked towards is taken care of exactly how you want even after you pass away. And adding contingent beneficiaries is an important part of your estate planning process.
This lets the courts and your executor know what to do with your assets in case your primary beneficiary is not available. This gives you the peace of mind of knowing that your estate and loved ones will be take taken care of exactly how you want.
What is a contingent beneficiary?
A contingent beneficiary is, in simple terms, your backup beneficiary. You need the proceeds from your estate to go where you choose, even if your primary beneficiary is predeceased, unable to be found, or doesn’t accept the inheritance.
By naming contingent beneficiaries for your assets, you can ensure they are protected even in unforeseeable emergencies. These are some assets that you need to name contingent beneficiaries for:
- Life Insurance policies
- Retirement Accounts like 401(k), 403(b), and IRA
- Transfer-on-Death and Payable-on-Death accounts
How does a contingent beneficiary work?
The person creating an estate plan (testator) needs to add contingent beneficiaries in various parts of the estate plan. While there can be multiple contingent beneficiaries, some providers may limit the number.
Contingent beneficiaries get activated only if the primary beneficiary is not available. If the primary beneficiary is alive, has been located, and accepts the inheritance, contingent beneficiaries do not have any rights to the proceeds from the estate.
However, if the primary beneficiary is not available, the contingent beneficiaries receive the inheritance in the same way that the primary beneficiary would have in equal percentages.
For example, John has named his wife as the primary beneficiary and his three children as contingent beneficiaries for his retirement account payouts. If John’s wife is available, she gets all proceeds from his retirement account and his children don’t receive anything. However, if John’s wife has predeceased him or has refused to accept the inheritance, his three children will receive 33.33% of the payouts each.
Who should be a contingent beneficiary?
Contingent beneficiaries are not limited to people. Depending on who should get the payouts from select assets if your primary beneficiary is not available, you can add various entities as your contingent beneficiaries:
Minor children and pets cannot be named as contingent beneficiaries because they cannot legally receive assets. However, if you still need to list minors as contingent beneficiaries, you also need to appoint a legal guardian to manage the money until they reach legal age.
What happens if I don’t have a contingent beneficiary?
If you don’t have any named contingent beneficiaries, the courts and your executor would not know how to manage your assets according to your wishes. The people or organizations you want may not get the proceedings from the assets.
Moreover, your loved ones will have to spend lots of unnecessary time, effort, and money to gain access to the payouts in probate courts. Simply naming contingent beneficiaries, however, can help you and your loved ones avoid this.
Naming beneficiaries for digital assets
Most often, while estate planning, people tend to forget planning for their digital assets too. This includes creating an estate plan for their digital accounts and assets and naming beneficiaries for them.
Estate planning for digital assets is a relatively new concept. Allowing family members to access the online accounts of their deceased loved ones encroaches into an unknown territory riddled with service providers’ legacy policies and terms and conditions, and legal guidelines like RUFADAA.
Naming beneficiaries for these assets will ensure your loved ones don’t have to go through twice the financial, legal, and emotional turmoil to gain access to your cryptocurrency and family photos. You can easily do this using online tools like Clocr’s Digital Estate Planning platform.
Contingent beneficiary FAQs
Can the same person be a primary and contingent beneficiary?
The purpose of naming a contingent beneficiary is to ensure there is an alternative way to manage your assets if your primary beneficiary is not available. Therefore, naming the same person as a primary and contingent beneficiary does not add any value to your estate plan, and should not be named as such.
Primary beneficiary vs contingent beneficiary
A primary beneficiary is the first person in line to receive the payouts or proceeds from your assets. A contingent beneficiary, on the other hand, is an alternative beneficiary who would receive the payouts only if the primary beneficiary is not available.
Create your secure digital estate plan and add beneficiaries to your online accounts easily today!