What Is an Alternate Beneficiary?

An alternate beneficiary is a term used for the individual who is usually named in a will in the event that a person who is the named beneficiary refuses, disclaims or is unable to accept the inheritance. In an insurance policy, an alternate beneficiary is usually a secondary or contingent beneficiary who receives the proceeds if the primary beneficiary has died.

Understanding Alternate Beneficiaries

Alternate beneficiaries are more common with real or personal property, like tangible objects. For example, if a testator left a favorite painting to a niece who did not want it, the testator could name a second or third person to whom the painting would go. Alternate beneficiaries can also provide a safeguard in the event that the primary beneficiary passes away before the owners of the will are able to revise their will. If the alternate beneficiary happens to be a minor or an individual who may still be young at the time of receiving the inheritance, a lawyer may also recommend that you name an alternate guardian to oversee the management.

What happens in the event that the will owner does not designate an alternate beneficiary, but the primary beneficiary passes away before the will is put into effect? In the event that the primary beneficiary is unavailable and there is no alternate beneficiary, the estate is divided according to state law. These laws can vary by state and depending on if the owner of the will had any other specifications regarding their estate.

Example of Alternate Beneficiary

As an example of how an alternate beneficiary would work, consider Ben and Betty, who have had a will drawn up with their lawyer. In the will, they have designated their son, Chad, as the beneficiary of their estate. During the time they were creating their will, their lawyer recommended that they also name an alternate beneficiary, so they chose their cousin, Jane, as an alternate beneficiary in the event that Chad was unable or unwilling to receive their inheritance. Although they thought at the time of the will that an alternate beneficiary was an unnecessary precaution, shortly before their passing, their son dissolved his relationship with his parents and at the time of their deaths, refused their estate and inheritance. Because Chad, as the legal beneficiary, declined to accept the terms of the will, the estate then went to Jane as the alternate beneficiary.