When you’re creating an estate plan, listing primary and contingent beneficiaries may confuse you. While the attorneys at Dworken & Bernstein will walk you through each step of the estate planning process, it never hurts to brush up on your terminology beforehand.
When and why are beneficiaries designated?
Beneficiaries typically receive assets, whether from a will, trust, survivorship account or life insurance policy. Depending on the estate planning document you’re using, you may choose to list one or more beneficiaries. For example, a parent may list both of their adult children as beneficiaries of their life insurance policy or in their will. They can set up individual trusts for all potential beneficiaries, or list multiple for a single trust.
What are primary and contingent beneficiaries?
Your attorney may recommend choosing both primary and contingent beneficiaries. A primary beneficiary has the first claim to whichever assets or benefits are distributed. There can be multiple primary beneficiaries on a single policy or asset. Their shares do not have to be equal, as long as they add up to 100 percent.
Unfortunately, life is unpredictable. Your beneficiaries may become estranged or predecease you. If all the primary beneficiaries have died, refuse the benefits or cannot be located, the benefits can be bestowed to a contingent beneficiary. Think of them as a legal backup plan: they might get your assets, but it’s not guaranteed.
In the earlier life insurance example, both adult children could be the primary beneficiaries. If only one of them has died, refuses the benefits or can’t be found, the other primary beneficiary would typically receive the entire amount, depending on the language. If both adult children are deceased, don’t want the benefits or can’t be located, the contingent beneficiary can claim them. If there is no contingent beneficiary, the proceeds are paid to the estate and go through probate.
Do I need a contingent beneficiary?
In most situations, you’re not required to list contingent beneficiaries. However, it can be a good idea. Designating contingent beneficiaries allows you more control over where your assets go, even if the people you’d prefer to benefit are unavailable. Don’t hesitate to ask your attorney what they recommend and why. The better you understand your options, the easier it is to make informed choices.
The attorneys at Dworken & Bernstein are happy to answer all your estate planning inquiries. Call us today to schedule a consultation.