Define Contingent Beneficiary

Contingent Beneficiary

What Does It Mean to Have a Contingent Beneficiary?

A contingent beneficiary is the person or entity that receives benefits if the primary beneficiary is deceased, unable to be traced, or declines the inheritance at the time the proceeds are to be distributed, as indicated by an insurance contract holder or the owner of a retirement account. A contingent beneficiary is only entitled to insurance benefits or retirement assets if certain preset circumstances, such as information provided in a will, are satisfied at the time of the insured's death.

TAKEAWAYS IMPORTANT

• If the primary beneficiary is deceased or unable to be traced, a contingent beneficiary receives the proceeds or payout.

• An insurance policy or a retirement account can identify a contingent beneficiary.

• Multiple dependent beneficiaries can be nominated, each receiving a certain percentage of the money up to 100%.

What is a Contingent Beneficiary Assignment?

Almost any conditions can be imposed on a contingent beneficiary of a will; it is entirely up to the individual who draughts the will. If the primary beneficiary accepts an inheritance, the contingent beneficiary will get nothing. Let's imagine Cheryl names their spouse John as the primary beneficiary on their life insurance policy, and

As dependent beneficiaries, their two children When Cheryl dies, John is the one who receives the insurance money, but the children are left with nothing. If John dies before Cheryl, their children will each receive half of the inheritance.

Contingent Beneficiaries' Characteristics

People, organisations, estates, charities, and trusts can all be contingent beneficiaries. Minor children and pets are not eligible because they lack the legal authority to accept assets that have been assigned to them. A legal guardian is appointed to administer the money until the minor achieves legal age if a minor is named as a contingent beneficiary. Although direct family members are the most usual contingent beneficiaries, close acquaintances and other relatives are frequently mentioned as well.

A life insurance policy or a retirement account may have many contingent beneficiaries. Each recipient is given a certain amount of the money, which adds up to 100%. The assets are distributed to contingent beneficiaries in the same way as they are distributed to the primary beneficiary. A primary beneficiary getting $1,000 per month for ten years, for example, means a dependent beneficiary will receive the same amount.

After important life events like marriage, divorce, birth, or death, contingent beneficiaries must be evaluated and amended. For example, after Chris and Rain divorce, Chris changes the primary beneficiary on their life insurance policy to Chris' kid River and the contingent beneficiary to Chris' second child Riley. Chris successfully prevents Rain from obtaining the funds from Chris' life insurance policy.

The Advantages of Designating Contingent Beneficiaries

Adding a contingent beneficiary to a life insurance policy or a retirement account might save a family time and money by avoiding probate. When there is no will, the legal process of dispersing a deceased person's assets is known as probate.

Uni, for example, names their children's stepfather Alex as the primary beneficiary of their life insurance proceeds, with Uni's favourite charity as the dependent beneficiary. Uni's children will not be able to dispute over their life insurance payouts if Alex dies before Uni since Uni named the charity as a dependent beneficiary.

A life insurance policyholder or the owner of a retirement account might set up contingencies to preclude an inheritance if specific conditions are met. For example, an IRA owner might name their kid as a dependent beneficiary and specify that the money can only be inherited when the child has completed college.

Another item to keep in mind is that, starting in 2019, non-spousal beneficiaries must take 100% of the IRA money by the end of the 10th year following the IRA owner's death, thanks to the SECURE Act.