What Is a Contingent Beneficiary? A contingent beneficiary is a person who will inherit property or money if the original beneficiary dies before the property is distributed.
For example, if you have a will that names your spouse as the beneficiary, but your spouse dies before you do, your children would become the contingent beneficiaries. If you don’t have a will, state law will determine who receives your property.
How Contingent Beneficiaries Work
When you create a will, you may name contingent beneficiaries to receive your assets if the people you name first die before you do. Contingent beneficiaries are a backup plan in case something happens to the primary beneficiaries.
They usually come into play when there is no clear order of precedence for who should inherit your assets. For example, if you have three children and two die before you, the last child would become the primary beneficiary and the contingent beneficiaries would be their siblings.
Contingent beneficiaries can also be used to split an inheritance evenly among multiple heirs. For example, if you have four children and want each of them to receive an equal share of your assets, you can name them as contingent beneficiaries. This way, if one child dies before you do, that child’s share will go to their siblings instead.
Contingent vs. Primary Beneficiaries
In order to make a will, you need to appoint beneficiaries. This can be done in two ways: as a contingent beneficiary or as a primary beneficiary. What’s the difference?
A contingent beneficiary is someone who inherits your property only if a specific event occurs, such as the death of all other beneficiaries. If that event does not happen, then the property goes to the primary beneficiary instead.
The primary beneficiary is the person who inherits your property automatically, regardless of what happens to the other beneficiaries. This is usually someone you trust to receive your assets after your death.
So which type of beneficiary should you choose? The answer depends on your situation and how you want your estate distributed. If you want flexibility in case something happens to one or more of your beneficiaries, then appointing contingent beneficiaries may be a good option.
Pros of Contingent Beneficiaries
When creating a will, most people list their spouse and children as beneficiaries. However, there may be times when this is not possible or desirable. In these cases, it is advisable to name contingent beneficiaries. Here are some of the pros of doing so:
If the primary beneficiary dies before the will-maker, the contingent beneficiary will inherit. This can provide peace of mind for those making a will, knowing that their loved ones will be taken care of even if something happens to them.
If the primary beneficiary is unable to inherit for some reason (e.g., they are underage or they are already receiving an inheritance from another source), the contingent beneficiary will become the new beneficiary. This can prevent family disputes over who should inherit what.
Cons of Contingent Beneficiaries
When you designate someone as a contingent beneficiary, you are essentially putting their life in the hands of the primary beneficiary. If something happens to the primary, the contingent beneficiary will get the money or property. This can be a good thing or a bad thing, depending on your situation.
The main con of contingent beneficiaries is that they can be left out in the cold if something happens to the primary. For example, if you die without a will and there is no contingent beneficiary listed, then your property will go to your closest living relative according to state law. If you have a contentious relationship with your closest living relative, they may not distribute the property in accordance with your wishes.
Another potential con of using contingent beneficiaries is that they can complicate things if there is more than one person named as such.
Contingent Beneficiary Example
When most people think about estate planning, they think about what will happen to their assets after they die. However, it’s important to also consider what will happen if you die before your will is executed. This is where contingent beneficiaries come in.
A contingent beneficiary is someone who receives benefits from a will only if a specific condition is met. For example, let’s say you have two children, John and Jane. You might name your spouse as the primary beneficiary, and John and Jane as contingent beneficiaries. This means that if your spouse dies before you do, John and Jane will inherit your assets.
There are many different types of contingent beneficiaries, and the type you choose depends on your individual circumstances.