Life is full of surprises—good and bad—and you will want to prepare for anything the future might hold in your will. A will is a document that distributes your assets upon your death (and can also appoint guardianship of minor children). Given the nature of life (you never know what will happen), appointing a contingent beneficiary to take your assets as a back up to your primary beneficiary is best practice in estate planning. Let’s discuss everything you need to know about contingent beneficiaries in wills.
What is a contingent beneficiary in a will?
A contingent beneficiary is a backup to your primary beneficiary. For example, let’s say John wants to leave all of his assets to his brother, Tom, and if Tom is not alive when John dies, then he wants all of his assets to go to his sister, Mary. Tom is the primary beneficiary, and Mary is the contingent beneficiary.
People generally name contingent beneficiaries if the primary beneficiary has predeceased them or if the primary beneficiary is unable to accept (or unwilling to accept) the inheritance. It’s basically like a backup plan for your assets in case something happens with your primary beneficiary, and it provides a way to ensure that assets are distributed as intended.
Choosing contingent beneficiaries
It’s easy to automatically assume your primary beneficiary will outlive you, but life is unpredictable. While it might seem unlikely, there’s always a chance your primary beneficiary won’t be able to inherit—for whatever reason. That’s why choosing a contingent beneficiary deserves careful thought, just like the primary beneficiary. Taking the time now to select the right person ensures your wishes are honored, and your assets go to someone you trust, even in unexpected circumstances.
Now, how do you actually put sufficient thought into choosing the right contingent beneficiary? Here are some factors to consider:
- Age of both the primary and contingent beneficiaries: If your primary beneficiary is older, there’s a much higher chance that they’ll predecease you, and the contingent beneficiary will be a more likely outcome. Same goes for the contingent beneficiary.
- Geographical Considerations: If you live in a different state or country than your primary beneficiary, you may want to consider the logistical aspects of transferring assets to them. A contingent beneficiary closer to your location may be more convenient for certain types of assets, like property.
- Financial responsibility: Do you care how your money is spent and used? If so, you may want to consider the financial responsibility of the contingent beneficiary. What are their spending habits? Are they a responsible person in general? Also, consider whether the contingent beneficiary has the knowledge or ability to handle specific types of assets you want to pass on. For example, a business owner might be a better choice to inherit a business, while someone with financial expertise may be better suited to managing investments.
- Family dynamics: Choosing a contingent beneficiary may also come with family conflict. Make sure to consider how your choice will affect the family dynamics once you’re gone. Choices like these can have lasting effects on families.
- Multiple contingent beneficiaries: You may also want to consider choosing multiple contingent beneficiaries if there are limiting factors like older age or the potential to not be able to inherit. Just make sure to list in hierarchical order who gets to inherit first.
How contingent beneficiaries work in a will
So, how do you actually write contingent beneficiaries into your will? Well, for starters, you need to input your contingent beneficiaries with clear and unambiguous language. It should be very obvious who should inherit your assets first (as the primary beneficiary) and who should inherit contingently.
You can also devise specific gifts to contingent beneficiaries or residuary estates. For example, “I bequest my prized record collection to John, and if John is not able to take the collection, then it should go to Mary.” Mary is the contingent beneficiary receiving the specific gift.
You can also make a contingent beneficiary based on certain conditions, for example, only allowing a contingent beneficiary to inherit based on age restrictions or other conditions. For example, “all of my assets should go to Mia, but if Mia is not 18 years old at the time of my death, then all of my assets should go to Jane.”
If both the primary and contingent beneficiaries are unable to inherit (e.g., if they both die before you or disclaim the inheritance), you can also designate a tertiary (third) beneficiary, ensuring that your assets are ultimately passed on to someone you trust.
What happens if there are no contingent beneficiaries named in a will?
If your primary beneficiary is unable to inherit your assets and you did not name a beneficiary in your will, it means that the default laws of your state will dictate how your assets are distributed. For example, let’s say you named your Uncle Larry as your primary beneficiary in your will, with no contingent beneficiary. But when you died, Uncle Larry was also already deceased. Now what? Your assets will now be distributed according to your state’s intestate succession laws. If you don’t have kids or a spouse, most states distribute next to parents, siblings, and grandparents/descendants of grandparents. This not only may make assets wind up in the wrong hands, but it can also slow down probate and make it a much more difficult process.
Appointing a contingent guardianship
You can also name a contingent guardian for your minor children in your will. While this isn’t technically considered a “beneficiary,” it’s important to consider if you have minor children. For example, you can appoint a primary guardian for your minor children if you pass away, and if the primary guardian appointed is unable to take on the responsibilities of guardianship, then you can also name a secondary guardian (or “contingent” guardian). It may be something like, “I appoint Sarah to be the guardian of my minor child, Noah. If Sarah is unable or unwilling to be the guardian of Noah, then I appoint Ashley to be the guardian.”
Common scenarios and examples
So, how do contingent beneficiaries work in real life? Let’s go over some common scenarios where contingent beneficiaries are used:
- Predeceased primary beneficiary: One of the most common uses of a contingent beneficiary is naming one if the first beneficiary is already deceased before the testator (the will-maker).
- Disqualification of primary beneficiary: Another common scenario is when a primary beneficiary is disqualified from inheriting based on things like divorce, legal issues, or other qualifiers.
- Age conditions: This scenario is typically used for minor beneficiaries or spendthrift beneficiaries. Contingent beneficiaries may be designated if the primary beneficiary is too young to inherit when the will-maker dies or is irresponsible and should only inherit if they’re older (and wiser) like being 30+.
- Primary Beneficiary Renounces the Inheritance: If the primary beneficiary refuses to accept the inheritance (known as “disclaiming”), the contingent beneficiary will receive the assets instead. For example, if your son decides not to take the inheritance because of tax implications, your daughter could inherit instead.
The bottom line on contingent beneficiaries in a will
As you can see, a contingent beneficiary is essentially just a backup beneficiary if the first and primary beneficiary is unable to inherit for whatever reason. You can create your own conditions, such as age requirements, marital status, and others. Or you can let nature take its course. And sometimes, even when you don’t place conditions on inheriting, the primary person may not be able to inherit for other unforeseen reasons. This is why it’s always smart to name contingent beneficiaries. Plus, it will offer unparalleled peace of mind, knowing that your stuff will be in the right hands no matter what the future holds!
Frequently Asked Questions (FAQs) about contingent beneficiaries
Let’s discuss some of your burning questions on the contingent beneficiary topic.
Q: Is it legally required to name a contingent beneficiary?
A: No! It’s not a legal requirement by any means, it’s just best practice, and most good estate planning attorneys will suggest this while drafting your will.
Q: How many contingent beneficiaries should I name?
A: You technically may name as many contingent beneficiaries as you want, though some insurance policies or retirement accounts may restrict how many you add. How many contingent beneficiaries you name should depend on the situation. For example, if all of your beneficiaries are 80+ years old, it may be important to name a few in case several are predeceased once you pass.
Q: What happens if a contingent beneficiary dies?
A: If your primary beneficiary and contingent beneficiary are both deceased by the time you die, then your assets will pass through your state’s default laws (intestacy laws) to determine who gets what.
Q: Do contingent beneficiaries have any rights before the primary beneficiary’s death?
A: No, contingent beneficiaries do not have any rights to the inheritance while the primary beneficiary is still alive and able to inherit. Their rights are only triggered when the primary beneficiary cannot inherit.
Q: Can a contingent beneficiary be changed?
A: Yes, a contingent beneficiary can be changed at any time by updating your will or estate plan. It is important to make sure that your will reflects your current intentions.
Q: Is a contingent beneficiary responsible for paying any debts?
A: A contingent beneficiary is not responsible for paying the debts of the deceased, unless they inherit specific assets that come with liabilities, like property with a mortgage. However, the estate itself is responsible for settling any outstanding debts before distributing assets to beneficiaries.
Katherine (Kathy) Bakes is the founder and managing attorney of Bakes Law LLC. Her eleven years of practice involves all aspects of family law, including the formation of prenuptial and postnuptial agreements, divorce and legal separations, child custody, child support, and visitation agreements, spousal support and financial settlements. Kathy also engages in the practice of estate planning including the formation of wills, revocable and irrevocable trusts, durable powers of attorney, health care proxies, HIPAA authorizations and living wills. Kathy is a member of both the Connecticut and Massachusetts state bars after receiving her Juris Doctorate degree from New England Law | Boston. Kathy lives in Southport, CT with her husband and toddler. Outside the office, Kathy enjoys playing the piano and teaches music education to students of all ages.
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