What is a Primary and a Contingent Beneficiary?

Creating an estate plan is the best way to make sure your wishes are followed when you are gone. As a part of putting your plan together, you’ll have to designate beneficiaries. One common hurdle is understanding the difference between a primary and contingent beneficiary. Knowing this distinction can make your estate plan more comprehensive and effective, giving you peace of mind that your loved ones will be okay when you’re gone.

What Is a Primary Beneficiary?

A primary beneficiary is the person or entity you choose to receive your assets first when you pass away. This could be a spouse, a child, a friend, or even a charity. When you set up a will, trust, or other financial accounts, like life insurance or retirement, you’ll be asked to name one or more people to receive your assets upon your passing.

If married, many people will name their spouse as the primary beneficiary on a life insurance policy or other asset. If you pass away, your spouse will receive the entire payout directly.

Why Is It Important to Choose a Primary Beneficiary?

Choosing a primary beneficiary ensures that your assets go to the person or organization you want to benefit. It can also help avoid conflicts among family members and ensure a smooth transfer of assets. You minimize the chances of disputes and legal challenges by clearly designating who should receive your assets. If you don’t, your assets could end up in probate court.

What if the Person I Name Cannot Receive my Assets?

Life is unpredictable, and there might be situations where your primary beneficiary cannot receive your assets. They might predecease you, be unable to be located, or simply refuse the inheritance. The most difficult part of estate planning is that we are trying to judge the future with today’s information, and we don’t know what the future holds. Until we have access to a crystal ball, the only option is to make our estate plans as flexible as possible so they adapt to whatever the future brings. This is where a contingent beneficiary comes into play.

What Is a Contingent Beneficiary and How does it Work?

A contingent beneficiary, or secondary beneficiary, is essentially a backup plan. The contingent beneficiary is next in line if the primary cannot receive the assets.

According to ElderLawAnswers, naming a contingent beneficiary is essential in estate planning. They are designated to receive your assets if your primary cannot do so. This additional layer of planning provides security and peace of mind, guaranteeing that your assets are passed on as you intended, regardless of any unexpected events.

Can You Name Multiple Beneficiaries?

Yes, you can designate multiple primary and contingent beneficiaries. This is particularly useful if you have multiple heirs or a large estate. For example, you might want to divide your estate equally among your children. In this case, you can name all your children as primary beneficiaries, each receiving a specified percentage of your assets.

When you have multiple primary beneficiaries, your assets are divided according to the percentages you specify. If one of the primary beneficiaries cannot receive their share, their portion can be reallocated to the remaining primary beneficiaries or passed on to the contingent beneficiaries, depending upon the language in the beneficiary designation.

You can similarly have multiple contingent beneficiaries. For example, you might name your spouse as the primary beneficiary and your two children as contingent beneficiaries. If your spouse cannot receive the assets, your children would then receive the assets consistent with your instructions.

What Is the Difference between Beneficiary and Heir-at-Law?

While beneficiaries are individuals you choose to receive your assets, heirs-at-law are entitled to inherit from you under state law. States may have different rules about who inherits, which are called “laws of intestacy”. For instance, in Missouri, if you are married with children at your passing then you spouse receives approximately half of your estate and the remainder is split between your children. Some other states have laws where your entire estate goes to your spouse. Without an estate plan, your heirs will have to go to Court to determine who receives your assets. Designating primary and contingent beneficiaries allows you to control who receives your assets rather than leaving it to state law.

Should You Regularly Update Your Plan?

Life circumstances change, and so should your estate plan. Major life events such as marriage, divorce, the birth of a child, or the death of a loved one may require updates to your plan. Regularly reviewing and updating your estate plan ensures that it remains aligned with your current wishes and life situation.

Take Control of Your Estate Planning

Having a flexible plan ensures that your assets are distributed according to your wishes, even in unexpected circumstances.

If you need assistance with your estate planning, consider consulting with our experienced estate planning attorneys. They can help you designate beneficiaries, create a comprehensive estate plan and provide peace of mind for you and your loved ones.

Book a Call with a Frankel, Rubin, Klein, Payne & Pudlowski attorney today, we are licensed in Missouri and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.

Key Takeaways

• Clear Asset Distribution: Designating primary and contingent beneficiaries ensures that your assets are distributed according to your wishes.
• Avoid Conflicts: Clearly naming beneficiaries can minimize disputes among family members.
• Backup Plan: Contingent beneficiaries provide a safety net if the primary beneficiary cannot receive the assets.
• Control: Having beneficiaries allows you to control who receives your assets rather than relying on state intestacy laws.
• Regular Updates: Keeping your beneficiaries updated ensures that your estate plan remains aligned with your current wishes and life situation.

Reference: ElderLawAnswers (May 20, 2024) “What Is a Contingent Beneficiary?”