The Importance of Contingent Beneficiaries

March 31, 2016

Getting organized and making sure that our estate plan is set up correctly can lower stress in our lives and in the lives of those handling our estates when we pass.

Last week, we discussed the ability to consolidate our accounts to make things more organized and easier to track (not to mention that it may lower the amount of mail we need to keep track from our investment accounts).

For each account (and especially retirement accounts), beneficiary designations should be made to ensure that an account has a place to go if you were to pass.

In non-retirement accounts (or accounts outside of our IRAs), they can be titled in the name of your living trust. In this circumstance, the funds would be designated to beneficiaries based on the trust language. If a trust has not been created, a “Transfer-on-death” election can be made to designate those assets to transfer to a designated beneficiary. Both of these allow this account to avoid probate.

Retirement accounts also have beneficiary designations. There are a couple different types of beneficiaries for your accounts. Understanding these can make all the difference

  1. Primary Beneficiary – This beneficiary is the first line to receive assets in the account. This can be split via percentages amongst multiple beneficiaries
  2. Contingent Beneficiary – This beneficiary receives assets only if ALL the primary beneficiaries pre-decease the account owner

So, if you have 3 primary beneficiaries and 2 contingents, your contingent beneficiaries will not inherit any assets unless both your primary beneficiaries either disclaim their inheritance or are deceased prior to your passing.

Every time there is a death in the family, or to one of your beneficiaries, it is recommended that you revisit your designations to make sure there aren’t any necessary changes. An experienced advisor can assist you to achieve understanding and clarity in this process.