Do you need contingent beneficiaries for your estate?

Deciding who will receive your assets when you pass away is a big part of estate planning. While some of your bequeathments will, no doubt, be handled through your will, you may have to name a beneficiary to receive certain other assets — like your life insurance proceeds and other payable-on-death accounts.

What happens if your chosen beneficiary isn’t able to accept their inheritance for some reason? That’s where contingent beneficiaries come in.

Primary versus contingent beneficiaries

Your primary beneficiary is the first person (or entity, like a trust or a charity) that’s in line to receive the designated assets. In most cases, you can even have more than one primary beneficiary on an account. For example, you could list both your adult children as primary beneficiaries on your life insurance policy, with 50% going to each child.

A contingent beneficiary is basically “next in line” if, for any reason, the assets cannot be paid to the primary beneficiary. Commonly, that happens because someone’s primary beneficiary predeceases them or the testator and their primary beneficiary die in a common accident, like a car crash. Sometimes a primary beneficiary just cannot be found or outright refuses an inheritance. On occasion, a primary beneficiary may be legally barred from collecting an inheritance due to criminal convictions.

Do you really need a backup plan for your beneficiaries? It’s wise. Life is very uncertain, and you don’t want your assets stuck in limbo or going somewhere you never intended, instead. Working through your options is all part of the estate planning process.