Contingent Beneficiary: Definition, Characteristics, and Benefits

What Is a Contingent Beneficiary?

A contingent beneficiary is specified by an insurance contract holder or retirement account owner as the person or entity receiving proceeds if the primary beneficiary is deceased, unable to be located, or refuses the inheritance at the time when the proceeds are to be paid. A contingent beneficiary is entitled to insurance proceeds or retirement assets only if certain predetermined conditions are met at the time of the insured’s death, such as information found in a will.

Key Takeaways

  • A contingent beneficiary is a beneficiary of proceeds or a payout if the primary beneficiary is deceased, unable to be located, or refuses the inheritance when proceeds are to be paid.
  • A contingent beneficiary can be named in an insurance contract or a retirement account.
  • Multiple contingent beneficiaries can be listed in which each beneficiary is designated a specific percentage of the money, adding up to 100%.

How a Contingent Beneficiary Assignment Works

For a contingent beneficiary of a will, virtually any conditions may be in place; it depends entirely on the person drafting the will. A contingent beneficiary will receive nothing if the primary beneficiary accepts an inheritance.

For example, let us say Cheryl lists their spouse, John, as the primary beneficiary for Cheryl’s life insurance policy and their two children as contingent beneficiaries. When Cheryl dies, John receives the insurance payout and the children receive nothing. If John predeceases Cheryl, their children each receive half of the proceeds.

Characteristics of Contingent Beneficiaries

Contingent beneficiaries can be people, organizations, estates, charities, or trusts. Minor children or pets do not qualify because they do not have the legal power to accept assigned assets. If a minor is listed as a contingent beneficiary, a legal guardian is appointed to oversee the money until the minor reaches legal age. Although it’s more common for contingent beneficiaries to be immediate family members, close friends and other relatives are often listed as well.

Multiple contingent beneficiaries may be listed on a life insurance policy or retirement account. Each beneficiary is designated a specific percentage of the money, adding up to 100%. A contingent beneficiary receives assets in the same manner stated for the primary beneficiary. For example, a primary beneficiary receiving $1,000 per month for 10 years means that a contingent beneficiary receives payments in the same way.

Contingent beneficiaries need to be reviewed and updated after major life changes, such as marriage, divorce, birth, or death. For example, after Chris and Rain divorce, Chris updates their life insurance policy so Chris’ child, River, is the primary beneficiary and Chris’ other child, Riley, is the contingent beneficiary. Chris successfully blocks Rain from receiving Chris’ life insurance proceeds.

Benefits of Naming Contingent Beneficiaries

Naming a contingent beneficiary for a life insurance policy or retirement account helps one’s family avoid unnecessary time and expenses related to probate. Probate is the legal process of distributing a deceased person’s assets when there is no will.

For example, Uni lists their children’s stepparent, Alex, as the primary beneficiary and Uni’s favorite charity as the contingent beneficiary for their life insurance proceeds. Even if Alex dies before Uni, Uni’s children cannot fight over their life insurance benefits because Uni listed the charity as the contingent beneficiary.

A life insurance policyholder or retirement account owner can create contingencies preventing an inheritance without meeting certain qualifications. For example, an individual retirement account (IRA) owner could establish their child as the contingent beneficiary and attach a restriction that the child may only inherit the money after they complete college.

Another thing to note is, due to the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019, non-spousal beneficiaries must withdraw 100% of the IRA funds by the end of the 10th year following the IRA owner’s death.

What happens if no contingent beneficiary is named?

If someone designates a beneficiary but no contingent beneficiary, and their primary beneficiary is deceased, the assets in question will be considered part of the estate and have to go through probate.

How many contingent beneficiaries can be named?

You can name as many contingent beneficiaries as you’d like and portion out your estate in any ratio that you wish. You can also appoint an organization as a beneficiary instead of an individual.

Do all primary beneficiaries have to die before assets move to the contingent beneficiary?

Yes. If there is more than one primary beneficiary and one of them dies, their portion is split among the other primary beneficiaries. All primary beneficiaries must be deceased or disclaim their inheritances before the assets pass to the contingent beneficiary.

Article Sources
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  1. Internal Revenue Service. “Retirement Topics—Required Minimum Distributions (RMDs).”

  2. “Importance of Naming Contingent Beneficiaries in Estate Planning Documents.”

  3. Policy Advice. “What Happens When Your Life Insurance Beneficiary Dies Before You?

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