All You Need To Know About Contingent Beneficiary 2024
Written by Daniel Ray, Life Insurance Expert |
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Fact Checked by
Lisamarie Monaco |
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If you searching about Contingent Beneficiary, this article is perfect for you.
A beneficiary is a person you designate as receiving assets from your estate if you ever die. You can select a specific beneficiary for a given asset or property that you may own from. Unconfirmed beneficiaries are the parties who may receive assets or benefits when your primary recipient can’t.
Having a contingent beneficiary generally doesn’t affect your prime beneficiary and you could name beneficiaries for assets that can skip probate like life insurance policies and 401(k) accounts.
Your contingent beneficiary can only receive a portion of your estate if your main beneficiary never passes before you.
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Benefits of Naming Contingent Beneficiaries
Probate is a legal process for the distribution of a living person’s assets when there’s no legal reason to name a beneficiary for a life insurance policy or retirement account.
For example, Uni lists the child’s father Alex as the main beneficiary for their life insurance. Although Alex passes away before Uni the children don’t have an option to dispute their severance as the charitable organization is in place.
After the SECURE Act of 2019, it’s important to note that non-spousal beneficiaries must withdraw the entire amount of IRA funds within 10 years following the death of the original account holder.
The children will have the money as soon as they finish school.
Why Should I Name Contingent Beneficiaries?
In some cases, your primary beneficiary can no longer inherit your possession in the trust or other way.
If you haven’t listed a beneficiary, state law applies to determine who received your money and how. In some cases, your money would come in the form of an estate payment for someone who passed away so call them the primary beneficiary.
If your spouse dies before you, the proceeds from your insurance plan will be directed to your selected charity, with your favored non-profit organization designated as the contingent beneficiary of your policies.
Any court determines what money is best to get back but states apply laws that would govern how they are used.
Primary and Contingent Beneficiaries
First beneficiaries are persons or entities who will receive your life insurance death benefit if something goes according to the plan.
Contingency beneficiaries will be the backup. For primary and contingent beneficiaries you can assign as many as you want.
The total portion of the death insurance funds granted to each of the primary beneficiaries essentially needs to total 100% as is also the case with contingent beneficiaries.
When you split up and share the death benefit some factors may impact the disbursement of the funds.
If one-time surviving family members died in a car accident contingent beneficiaries’ benefit could qualify from a deceased spouse’s inheritance.
Who Can I Name as Beneficiary?
Your beneficiaries may be other parties to the benefit that will get compensation or a death benefit at any point in the time you die.
If you want to leave money to young children you need to assign a guardian or create a trust to oversee the funds.
Experts recommend reviewing your selections every three to five years and following any major life milestone such as divorce or the birth of the family.
In most cases, you have the option to change your beneficiaries, unless your policy considers the beneficiary assignment to be irrevocable.
Animals do not qualify for these exemptions, and neither shall a child. When they’re old enough to have children they’ll have trust.
Characteristics of Contingent Beneficiaries
Children whose parent is ineligible cannot apply because they lack the right to acquire what was assigned.
When a minor is named as a contingent beneficiary, a legal representative for the child is appointed to manage it until the child reaches legal age. The contingent beneficiaries receive a particular percentage from money totaling 100%.
For example, a primary beneficiary receives $1,000 a month for 10 years as the primary beneficiary for someone with a life insurance policy or retirement savings account.
The primary beneficiary receives the money in the same way that the primary beneficiary of a person who dies in a divorce or a child’s death.
How do I change beneficiaries?
An estate plan is paradoxically a live-living document.
Although creating a plan that accounts for every possible scenario is impossible, seeking guidance from an experienced estate planner will ensure your plans are customized to fit your needs.
If you are completely undecided about who will inherit your assets, you might be tempted to update your beneficiaries.
You can’t change beneficiaries in an irrevocable bank account. Changing beneficiary could lead to serious tax consequences, such as where spouses involved should consult any professional in your field to ensure that they plan their affairs in the most advantageous and efficient manner possible.
Understanding the types of beneficiaries
The primary beneficiary of the asset is the entities who have the first claim on your assets after your death.
The only way for a dependent beneficiary to inherit something from the account or policy is if the primary beneficiary or beneficiaries have ceased you or no one else can.
If you had two children and named your son as the primary or principal donor and your daughter as the contingent beneficiary, only your son would inherit the assets upon your death unless he predeceases you.
Alternately, you have a right to make your spouse the primary beneficiary of your inheritance and that you name your children a contingent beneficiary.
Important FAQs
Can you have more than one beneficiary?
You can name the beneficiaries on any taxable account on any investment. You can additionally name contingent beneficiaries for one asset simultaneously.
Remember your contingent beneficiaries will inherit the asset only if your primary beneficiary or beneficiaries cannot. You can make multiple contributory benefits in one assoc.
Who should I put as contingent beneficiary?
Although contingent beneficiaries are often just relatives of relatives, it is also common for close friends and other relatives to be named.
Life insurance policies or retirement accounts can name multiple contingent beneficiaries.
Can the same person be a primary and contingent beneficiary?
Do different beneficiaries make up a single household? Often estate plans do not recognize the same people as both principal and dependent beneficiaries.
Since the contingent beneficiary is a backup, it is important not to name the same person in either role.
Why do I need a contingent beneficiary?
The fundamental motivation of creating a contingent beneficiary would be to stop a disputed property from being tried in a probate court.
The act of choosing a designated contingent beneficiary is the most convenient way to control the way your assets pass through. A court decides when the family is slated to get the property and the settlement.
Does a will override life insurance beneficiaries?
No will or trust shall replace an insurance policy. The life insurance beneficiary shall never be released.
Most life insurance policies cover changes easily or change their beneficiary at death, for example after a spouse has divorced.
Does life insurance go to the estate or beneficiary?
The benefits paid under a life insurance agreement go straight to those persons named on the policies.
These are usually not part of the executors’ probation estate so you should avoid any probate issues.
Is life insurance affected by a will?
In short, your will does not influence the life insurance policy, so the person named in your policy is entitled to its benefits. However, the person you designate in your will is entitled to receive the remainder of your property and assets.
Does the primary beneficiary get everything?
The main beneficiary is the person or entity who inherits your assets after your death. Typically, a contingent beneficiary inherits something from a policy if the main or principal beneficiary has predeceased you or cannot be found.
Can a trust be a contingent beneficiary?
A contingent trust is a trust where the designated beneficiaries will not acquire any trust property until something specific happens.
You can add contingent beneficiaries to the contingent trust so the property can pass to someone else when something happens to the primary beneficiaries.
What does the contingent percentage mean for life insurance?
A contingent beneficiary is a beneficiary of proceeds or a payout if the primary beneficiary is deceased or cannot be located.
It is possible to list multiple contingent beneficiaries in which each beneficiary has a specific amount that adds up to 100%.
Should children be primary or contingent beneficiaries?
Your clients should not identify or list their minor children as direct victims due to the fact life insurance companies cannot be liable to any children directly until the children reach the age of majority, typically 18 or 21 depending on state laws.
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Conclusion
So there you have it, a contingent beneficiary is someone who will receive assets from your estate if you ever die.
Your prime beneficiary may not be affected by this type of arrangement and the person or people receiving these benefits can only get them if they are alive when you pass away. If any of this seemed confusing to you, don’t worry!
We’re here for ya so just give us a call at 855-380-3300 and we’ll help answer all those questions that might’ve been lingering in the back of your mind about contingencies. And as always, thanks for reading our blog post on what exactly a contingent beneficiary is – hopefully now that’s clear as day!
