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Primary vs. Contingent Beneficiary

An important part of estate planning is deciding who will get your assets when you pass away. This means naming primary and contingent beneficiaries on important accounts such as your life insurance policy and retirement account. But what do these terms even mean, and what’s the difference between a primary and contingent beneficiary? Consider working with a financial advisor to ensure that your estate planning is coordinated with your investment plans.

What Is a Primary Beneficiary?

Put simply, a primary beneficiary is a person you want named as first in line when it comes to receiving certain assets and benefits upon your death. You will typically be asked to name a primary beneficiary on accounts such as:

  • Life insurance policies
  • Retirement accounts (401(k)s, IRAs and 403(b)s)
  • Bank accounts
  • Annuities
  • Other Payable on Death (POD) or Transfer on Death (TOD) accounts

When you pass away, your primary beneficiary will receive the applicable assets for which they are named. For example, if you have a life insurance policy, your beneficiary will be sent your policy’s benefit after your death.

A primary beneficiary can be one person or multiple people, such as all of your adult children. Primary beneficiaries can even be an account such as a revocable trust, living trust, charity or another legal entity. Just note that if you name more than one person as the primary beneficiary for a particular asset, the asset will be split equally between them, unless you designate a specific percentage split when establishing the account.

What Is a Contingent Beneficiary?

A contingent beneficiary is your backup beneficiary, or the second in line. If your primary beneficiary passes away before you, cannot be located, or refuses to accept the asset in question, it will generally pass to the contingent beneficiary.

It’s important to note that the only way a contingent beneficiary inherits anything is if the primary beneficiary is unavailable or unwilling to inherit the account. If you want to ensure that someone inherits a portion of your assets, naming them as a contingent or secondary beneficiary is not sufficient.

Primary vs. Contingent Beneficiaries

Primary vs. Contingent Beneficiary

It’s always wise to name both a primary beneficiary and a contingent beneficiary on any important account you have, such as a life insurance policy. Doing so can help your assets bypass the probate system, which can be time-consuming and costly for your loved ones. Instead, with primary and contingent beneficiaries, you’re able to name specific heirs for certain accounts. A portion of your estate may still go before the probate courts, depending on your asset structure. However, named beneficiaries can help to simplify your estate plan for specific assets.

Naming a primary beneficiary isn’t enough, though. If your primary beneficiary were to pass away before you — or even at the same time as you, such as in a car accident — the assets in question would go back to your estate and be subject to probate.

This court system will then determine which of your heirs get what. Their decision may or may not be in line with your personal wishes.

If your primary beneficiary cannot be located, or refuses to accept the asset that you left to them, you’ll need a contingent beneficiary in place as a backup.

Rights of the Primary and Contingent Beneficiary

Neither your primary beneficiary nor your contingent beneficiary have any claim to your property while you are still living. Their assumption of the asset only comes into play after you have passed away.

A contingent beneficiary has even fewer rights, and does not inherit anything upon your death. The exception is if any and all named primary beneficiaries have passed away, are missing or refuse to accept the asset. Then and only then does the contingent beneficiary factor in.

Bottom Line

Primary vs. Contingent Beneficiary

A key part of any financial plan is determining who will get your assets when you die. Whether you have a life insurance policy, certain retirement accounts or even bank accounts, you’ll want to name primary and contingent beneficiaries as the inheritors when possible. Your primary beneficiary is the first in line, with the contingent beneficiary only coming into play if the primary beneficiary is unavailable.

Tips on Estate Planning

  • A financial advisor can help you both create and manage your personalized estate plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Part of estate planning is building up a nest egg for retirement. Use the SmartAsset retirement calculator to see how you’re progressing toward your financial goals.

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