In this article, we’re answering “What is a contingent beneficiary?” In short, a contingent beneficiary is a backup recipient of assets in the event that the primary beneficiary cannot receive them.
That said, there are a number of important nuances that you should be aware of before appointing a contingent, which we’ll explain below. We will also be answering common questions we receive from our members on the topic.
This article is part of our free series on banking, estate planning, and the legal documents that surround them, including a free detailed guide to opening a private bank account for yourself and your family members.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is a Contingent Beneficiary?
- What Is the Difference Between Primary and Contingent Beneficiaries?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is a Contingent Beneficiary?
A contingent beneficiary refers to a backup beneficiary that receives inheritance assets in the event that the primary beneficiary is unable or unwilling to receive their assets.
Both the primary beneficiary designation and the contingent beneficiary designation represent legal heirs in estate planning. However, the contingent only receives an asset distribution if the primary is unable.
Not surprisingly, having a contingent beneficiary is an important consideration in succession planning. For this reason, an estate lawyer preparing a last will and testament will usually ask for a contingent beneficiary to be appointed.
That said, a contingent can also be appointed to various financial products as well, including a life insurance policy, brokerage accounts, bank accounts, and more.
Of course, in addition to considering how assets are distributed, individuals should also consider the probate process and any estate taxes that will be related to their bequest.
What Is the Difference Between Primary and Contingent Beneficiaries?
The main difference between primary and contingent beneficiaries is that a primary beneficiary will receive inheritance assets as long as they are able and willing to do so, while a contingent beneficiary will only receive inheritance assets if the primary beneficiary is unable or unwilling to do so.
Needless to say, appointing a contingent beneficiary is an important and valuable step to ensure assets are distributed in accordance with a person’s wishes after they pass. In the next section, we will take a look at a few of the key benefits of a contingent.
Benefits of Contingent Beneficiaries
The main benefit of appointing contingent beneficiaries is a clear plan for distribution in the event that something happens to the primary beneficiary. Additional benefits include clarity for family members about the testator’s wishes, less friction between family members, and no risk of the jurisdiction distributing assets as they see fit.
- A clear plan for how you want assets distributed
- Avoid assets distribution by the jurisdiction
- Removes any doubt or questions about distribution plans
- Helps to mitigate family disagreements
- Provides additional options for charitable giving
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Do I Need a Contingent Beneficiary?
It is not necessary to have a contingent beneficiary. However, many professionals suggest appointing a contingent in order to make sure that asset distribution is in line with their wishes.
How Does Contingent Beneficiary Work?
Contingent beneficiary distribution works similarly to primary beneficiary distributions, with one major difference, which is that a contingent beneficiary only receives a distribution of assets when the primary beneficiary is no longer able or willing to do so.
Who Is Considered a Contingent Beneficiary?
A contingent beneficiary is a specific individual that is named in writing in a will and testament or in a life insurance policy (or other similar inheritance vehicle). In the event the primary person is unable or unwilling to receive assets, the assets will be distributed to the contingent.
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