A contingent beneficiary is the person or entity designated to receive proceeds from a life insurance policy, retirement account or transfer on death account if the primary beneficiary predeceases the account owner or otherwise is unable or unwilling to accept the inheritance. A comprehensive estate plan maps out every possible contingency. The most obvious reason to do an estate plan is to make sure that your assets pass to whomever you choose at your death. You designate specific “beneficiaries” to inherit your assets. This includes real property, financial accounts, and meaningful personal belongings. Not only should your estate plan include your chosen beneficiary, but also your contingent beneficiary. A contingent beneficiary is “next in line” to inherit assets if your primary beneficiary cannot do so.
It may be that, at the time of your passing, your primary beneficiary is no longer living. If you fail to name a contingent beneficiary, the state intestacy statute determines who receives your assets. Naming contingent beneficiaries can also be used strategically, such as when a beneficiary “disclaims” an inheritance. Beneficiaries may disclaim to allow the inheritance to pass to someone else, such as a child or grandchild, to maximize an estate tax exemption or when an inheritance would disqualify them for certain types of federal benefits, such as student loans or Medicaid. Naming contingent beneficiaries allows for a comprehensive estate plan that anticipates the unknown future.
Estate planning goes beyond the four corners of your documents. A beneficiary is not just a person or charity you name in your will or trust documents. You also name beneficiaries on assets that do not pass through your will or trust: retirement accounts and life insurance. These forms are usually completed when the account is opened but can be amended at any time. How to correctly designate a beneficiary on the form will depend on your personalized estate planning needs and goals. For example, when you have minor children, you will not name them directly as contingent beneficiaries. Instead, you name the trust created for their benefit in your will or trust.
It is critical that an estate planning attorney review these designations in conjunction with your estate plan. Many people do not realize that beneficiary designation forms trump the will. They may go through the time and expense of creating a will that lays out their wishes, only to find out that most of their assets are passing outside their will. It is important to ensure that all of your assets are properly titled or have the correct beneficiary designation language. Otherwise, your wishes regarding the distribution of your assets at your death cannot be carried out.
Creating a personalized estate plan should be a top priority of yours, as it is a critical step in preparing for your future. Every estate plan is different because every family is different. That is why it is imperative that you provide your estate planning attorney with all the information she needs. This includes financial records, family dynamic, and any personal concerns that may need to be addressed in your documents.