Estate planning assets should have primary and contingent beneficiaries.

Some assets must pass to beneficiaries through a last will and testament or a trust.

Other assets, such as life insurance policies, retirement accounts, and certain financial accounts, can be inherited through beneficiary designations specifically for these assets.

Designating beneficiaries on these accounts and in last wills or trusts is part of comprehensive estate planning.

When doing so, one must choose both primary and contingent beneficiaries.

Contingent beneficiaries are a safety net in estate planning.

What Are Primary Beneficiaries?

The primary beneficiary is the person who will be first in line to receive the asset when you die.

Common choices include a spouse, children, a friend, or a non-profit.

Whether you are naming beneficiaries directly to financial accounts or selecting heirs in a trust or last will, you can choose one or more primary beneficiaries.

For accounts with dedicated beneficiary designations, the primary beneficiary will receive the asset or payout directly.

Why Is It Important to Choose a Primary Beneficiary?

Primary beneficiaries are key to estate planning because they ensure your wishes for who will inherit are documented and will be honored.

Without primary beneficiary designations, families can fight over the estate, or the government can choose who inherits.

Yikes!

By naming beneficiaries, you simplify the transfer of assets to heirs and minimize the chances of family dissension.

What if the Primary Beneficiary Cannot Receive Assets?

Sometimes your primary beneficiaries are not able to inherit.

When might this happen?

Your primary heirs may have died before you.

Your executor may not be able to locate them.

Lastly, your heir may refuse the inheritance outright.

In these instances, a contingent beneficiary is crucial.

What Are Contingent Beneficiaries?

A contingent beneficiary is also known as a secondary beneficiary.

This beneficiary serves as the backup or replacement heir should the primary beneficiary be unable to inherit.

For example, you may have named your spouse as your primary beneficiary and your children as your contingent beneficiaries.

If your spouse dies before you or you die at the same time, your children will be next to receive the asset.

How Do Contingent Beneficiaries Work?

According to an ElderLawAnswers article, comprehensive estate planning should include contingent beneficiaries.

With a contingent beneficiary, you can still have a say in who inherits if your first choice is unable to be your heir.

In short, contingent beneficiaries allow your estate planning goals and wishes to endure unforeseen circumstances.

Can You Have Multiple Beneficiaries?

Multiple beneficiaries can be listed as both primary and contingent beneficiaries.

If you have a large estate or multiple family members you would like to inherit, you should list multiple beneficiaries.

For example, you could name all of your children as primary beneficiaries, and each would receive a percentage of your assets.

How Do Multiple Beneficiaries Work?

If you choose to name several primary beneficiaries rather than one beneficiary, your assets will be divided according to the percentage you indicate.

What happens if one of the primary beneficiaries cannot inherit?

The portion apportioned to this heir can either be designated to be divided among the remaining beneficiaries or passed to the contingent beneficiaries.

It is also possible to have multiple contingent beneficiaries.

In fact, many people name their spouse as the primary beneficiary and then name multiple children as contingent beneficiaries.

In this case, all of the children would divide the assets if your spouse was unable to inherit.

What Is the Difference between Beneficiary and Heir-at-Law?

Beneficiaries are those you choose to be your heirs.

Heirs-at-law are those who inherit based on state law if a person dies without a last will and testament.

The assets of those who do not have an estate plan will be subject to the intestacy laws of the state.

These laws typically designate close relatives to inherit.

By naming primary and contingent beneficiaries, you prevent your assets from being subject to the default rules of the state.

Should You Regularly Update Your Beneficiaries?

Having contingent beneficiaries does not mean you can neglect estate planning.

You should still review and update your estate plan as life circumstances change.

Common triggers for updating an estate plan include the birth of a child, marriage, divorce, or death of a beneficiary.

Take Control of Your Estate Planning

Primary and contingent beneficiaries are key aspects of comprehensive estate planning.

Failing to include them in your trust, last will or financial documents could result in your estate being distributed to people you did not choose.

You should work with an experienced estate planning attorney to create an effective comprehensive estate plan.

What are Key Takeaways Regarding Primary and Contingent Beneficiaries?

Choosing primary and contingent beneficiaries ensures your estate planning wishes are honored while minimizing family conflict.

Contingent beneficiaries serve as a backup plan for the primary beneficiary if something were to happen.

By naming your own beneficiaries and updating them as life changes, you can maintain control over your estate and give you and your loved ones peace of mind.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.

Reference: ElderLawAnswers (May 20, 2024) “What Is a Contingent Beneficiary?”