A well-crafted estate plan includes a last will and testament, which states what happens to your property and assets when you pass away. One of the most important components of a will are the beneficiaries, the people or entities receiving your assets. But what happens if your primary beneficiary isn’t around when you pass away? That’s where the contingent beneficiary comes in.
A contingent beneficiary in a will, also known as the secondary beneficiary, is the next person in line to receive the asset. They only inherit if the primary beneficiary is dead, cannot be located, or chooses not to accept the inheritance.
You can choose almost anyone you want to be the contingent beneficiary in your will. If you don’t name one, the probate court will determine who receives the asset according to state law, which means the person you ultimately wanted to receive your property and belongings might not get them.
A contingent beneficiary in a will receives an asset when the primary beneficiary cannot or does not want to receive the asset.
If the primary beneficiary of a will is dead and there’s no contingent beneficiary, state anti-lapse or intestacy laws determine who receives the assets.
You can also name contingent beneficiaries for life insurance policies, payable-on-death accounts, and trusts.
What is a contingent beneficiary of a will?
A contingent beneficiary is the backup recipient who gets your assets. If the main beneficiary, or primary beneficiary you named in your will has died, cannot be located, or refuses the inheritance, then the contingent beneficiary receives the asset instead. If you have multiple primary beneficiaries and one of them predeceases you, the contingent beneficiary only receives the share of that deceased primary beneficiary. The other primary beneficiaries who are alive would still receive their inheritance.
A third backup beneficiary is called a tertiary beneficiary to receive your assets.
Who should be the contingent beneficiaries in your will?
Choosing a contingent beneficiary has the same restrictions, or lack thereof, as choosing a primary beneficiary. You can name another family member, friend, business, or charity. Just don’t name the same person as both primary and contingent beneficiary in your will since that would defeat the purpose of this designation.
Keep in mind that if you name a child as a contingent beneficiary of your will, then they may not be able to possess the asset until they reach the legal age of the majority (often 18). Their legal guardian will hold the asset for the time being.
What happens if there are no contingent beneficiaries in a will?
If the primary beneficiary can’t receive an asset and there is no contingent beneficiary named in a will, then there is no one to inherit the asset. An asset without a proper beneficiary is called a “lapsed gift” or a “failed gift.” Who ends up receiving it depends on the state’s anti-lapse laws and the construction of the will.
You can expect one of the follow things to happen:
The failed gift goes to the deceased beneficiary’s children
The failed gift is redirected to the residuary estate
The failed gift is distributed according to intestate succession
When the deceased beneficiary of a will is related to the testator (will writer), the lapsed asset typically goes to their direct descendant. However, your state's anti-lapse laws may exclude non-blood relatives. For example, if you named your friend Joe as the beneficiary in your will and he predeceases you, his share may not necessarily go to his children, depending on state law.
Depending on the terms of the will, the asset may just become part of the residuary estate instead and be distributed according to the terms of the will. It’s also possible for the heir to be determined through state intestacy laws, which are used when someone dies without a will.
→ Read what happens when you die without a will in different scenarios
State law may also implement per stirpes or some version of it when it comes to distributing the deceased beneficiary’s inheritance. If you have a complex estate or specific distribution plans in mind, you may want to speak with an estate lawyer. They will be able to help craft your will to ensure every scenario is accounted for when it comes to contingent beneficiaries, although a simple will is fine for most people.
→ Related article: How to find an estate planning attorney
Other types of contingent beneficiaries
You will encounter contingent beneficiaries in other areas of estate planning. Financial accounts, like a retirement account or bank account, can be made payable-on-death (POD) with a beneficiary designation. You can usually name a contingent beneficiary in addition to a primary one to receive these payable-on-death accounts outright when you die.
You can also name a contingent beneficiary for a life insurance policy to receive the death benefit if your first-choice beneficiary is unable to do so.
Another way to pass on assets and property as part of your estate plan is with a living trust. You can name a contingent beneficiary in the trust document. Just like POD accounts and life insurance, trust assets are transferred to their designated beneficiaries outside of probate.