If you have a life insurance policy or a retirement account, you have probably been asked to fill out a beneficiary form at some point. You have probably listed the first person who came to mind that you hope to receive these assets when you pass away but listing one person might not be enough.
Listing a contingency beneficiary gives you more flexibility and allows for circumstances that can occur over the life of the policy or account, such as the death of the person who is listed as the primary beneficiary. A contingent beneficiary helps to ensure that your insurance payouts, trusts, and assets go to the people you want to receive it.
A contingency beneficiary, therefore, is something like a backup plan to ensure that your assets go to a preferred person in the event that someone in your existing plan is unable to accept the asset or chooses not to accept it. A contingent beneficiary isn’t bound only by whether or not that primary beneficiary is eligible to take the asset first. Using a document such as a will, you can list other conditions as well.
For example, if your contingent beneficiary is currently a minor child or is currently an 18-year old child that you do not believe is financially responsible enough to manage these assets, one of the conditions could be that they receive the assets after they turn 21 or graduate from college. In some cases, you might also be able to name more than one contingent beneficiary if you wish. Life insurance is one of the most common policies in your overall estate and financial plan that necessitates naming both a primary and a contingent beneficiary, but other financial accounts should not be forgotten including your IRA, a living trust or a 401(k).
Make sure that you notify anyone who has been named in the position of a beneficiary so that they are not caught off-guard if they are contacted regarding the transfer of assets. Need help checking your own plans? Our Pasadena law office is here for you.