Contingent Beneficiary

A contingent beneficiary is a person, trust, charity, or other entity designated to receive assets only if the primary beneficiary cannot or will not accept them. Naming contingent beneficiaries on wills, life insurance policies, retirement accounts, and other payable-on-death instruments provides a backup distribution plan and helps ensure assets pass according to your wishes.

How the assignment works

• The primary beneficiary receives the asset unless they are deceased, unreachable, or formally disclaim the inheritance.
• If the primary cannot receive the asset, the contingent beneficiary becomes entitled to it.
• Example: Cheryl names her spouse John as primary on a life insurance policy and their children as contingent beneficiaries. If John survives Cheryl, he receives the payout; if John predeceases Cheryl, the children split the proceeds.

Note: Laws affecting inherited retirement accounts can impose specific rules. For example, the SECURE Act requires most non‑spousal beneficiaries to withdraw inherited IRA funds within 10 years of the owner’s death.

Key characteristics

• Contingent beneficiaries can be individuals, trusts, charities, estates, or organizations.
• Minors cannot directly accept assets; a guardian or trust typically manages funds until they reach legal age.
• You may name multiple contingent beneficiaries and specify the percentage each should receive; allocations should total 100%.
• A contingent beneficiary inherits under the same terms as the primary (for example, the same payment schedule).

Why you should review and update beneficiary designations

Beneficiary forms are separate from wills and often control distribution, so review them after major life events:
* Marriage or divorce
* Birth or adoption of children
* Death of a beneficiary
* Significant changes in relationships or financial goals

Example: After a divorce, Chris updates a policy to name River as primary and Riley as contingent, preventing a former spouse from receiving proceeds.

Advantages of naming contingent beneficiaries

• Helps avoid probate for assets that transfer by beneficiary designation, saving time and legal costs.
• Provides clarity and reduces the potential for family disputes.
• Allows for structured or conditional transfers when combined with trusts or policy provisions.

Example: Uni names a stepparent as primary and a favorite charity as contingent. If the stepparent predeceases Uni, the charity receives the proceeds, minimizing conflict among heirs.

Conditions and use of trusts

You can place conditions on inheritances (subject to legal limits). For instance:
* Require a beneficiary to complete college before receiving funds.
* Use a trust as a contingent beneficiary to control timing, distribution amounts, and protections (e.g., creditor protection, management for minors).

If no contingent beneficiary is named

If the primary beneficiary is unable to inherit and no contingent beneficiary is listed, the asset typically becomes part of the decedent’s estate and is distributed through probate according to a will or state intestacy laws.

Number of contingent beneficiaries

You can name as many contingent beneficiaries as you like and allocate percentages in any proportions that add to 100%. Organizations may be named instead of individuals.

When do contingent beneficiaries inherit?

All primary beneficiaries must be deceased or must validly disclaim their shares before assets pass to contingent beneficiaries. If one of several primary beneficiaries dies, that deceased person’s share is usually reallocated among the surviving primary beneficiaries unless the designation specifies otherwise.

Bottom line

Designating contingent beneficiaries is a simple but important step in estate planning. It ensures assets transfer according to your wishes if primary beneficiaries cannot inherit, helps avoid probate for certain assets, and reduces uncertainty and potential conflict for survivors. Review and update beneficiary designations regularly to reflect life changes and consider trusts or conditions when more control over distributions is desired.