Understanding Contingent Beneficiaries in Estate Planning
Why Include a Contingent Beneficiary in Your Estate Plan?
A contingent beneficiary is a person or organization designated to receive assets from your estate if your primary beneficiary is unable to inherit or chooses not to. It’s important to include a contingent beneficiary in your estate plan because it ensures that your assets are distributed according to your wishes, even if your primary beneficiary cannot receive them.
There are several scenarios in which a contingent beneficiary may become necessary. For example, if your primary beneficiary passes away before you, becomes incapacitated, or disclaims their inheritance, a contingent beneficiary will step in to receive the assets. Without a contingent beneficiary, the assets may pass to your estate, and the distribution will be subject to probate, which can be time-consuming and expensive.
Another reason to include a contingent beneficiary is to ensure that your assets are distributed to your intended recipients. If you don’t have a contingent beneficiary, the assets may pass to a default beneficiary determined by state law, which may not align with your wishes.
Overall, including a contingent beneficiary in your estate plan provides peace of mind knowing that your assets will be distributed according to your wishes and can avoid potential legal battles or complications in the future.
Types of Contingent Beneficiaries
There are different types of contingent beneficiaries that can be included in an estate plan, depending on the specific circumstances and goals of the individual. Here are some common types:
Successor beneficiary: This is the most common type of contingent beneficiary. A successor beneficiary is named to receive assets if the primary beneficiary is unable to inherit. For example, if the primary beneficiary passes away before the estate owner, the successor beneficiary will receive the assets.
Alternate beneficiary: An alternate beneficiary is named to receive assets if the primary beneficiary chooses not to or cannot inherit. For example, if the primary beneficiary disclaims their inheritance or is found to be ineligible to inherit, the alternate beneficiary will receive the assets.
Per stirpes beneficiary: This type of contingent beneficiary is named to receive assets in the event that the primary beneficiary and their descendants cannot inherit. For example, if the primary beneficiary passes away before the estate owner and has children, the per stirpes beneficiary will receive the assets if both the primary beneficiary and their children are unable to inherit.
Charitable beneficiary: A charitable beneficiary is an organization or cause that is designated to receive assets from the estate if the primary beneficiary is unable to inherit. This type of contingent beneficiary is often used to support causes that are important to the estate owner.
It’s important to consider the specific circumstances and goals of your estate plan when choosing a contingent beneficiary. Consulting with an experienced estate planning attorney can help ensure that your estate plan is tailored to your specific needs.
How to Choose a Contingent Beneficiary
Choosing a contingent beneficiary for your estate plan requires careful consideration and planning. Here are some steps to take when selecting a contingent beneficiary:
Identify potential candidates: Consider who you would like to inherit your assets if your primary beneficiary is unable to. This may include family members, friends, charitable organizations, or other individuals or entities.
Consider their eligibility: It’s important to ensure that your chosen contingent beneficiary is eligible to inherit according to state and federal laws. For example, some entities may not be able to receive certain types of assets, such as retirement accounts.
Determine their level of need: Consider the financial needs of your potential contingent beneficiary. Are they financially stable, or would they benefit greatly from the inheritance?
Discuss with them: If possible, it may be helpful to discuss your intentions with your potential contingent beneficiary. This can help ensure that they are willing and able to accept the inheritance and can also help prevent misunderstandings or conflicts down the line.
Review and update regularly: It’s important to regularly review and update your estate plan to ensure that your chosen contingent beneficiary is still appropriate. Life circumstances may change, and it’s important to ensure that your estate plan reflects your current wishes.
Choosing a contingent beneficiary can be a complex process, and it’s important to seek guidance from an experienced estate planning attorney to ensure that your estate plan meets your needs and goals.
Updating Your Contingent Beneficiary Designation
Updating your contingent beneficiary designation is an important step in maintaining an effective estate plan. Here are some reasons why you may need to update your contingent beneficiary designation:
Life changes: Major life changes, such as marriage, divorce, or the birth of a child, can impact your estate plan and may require updates to your contingent beneficiary designation.
Change in relationship: If your relationship with your chosen contingent beneficiary changes, such as a falling out or death, you may want to update your designation.
Change in financial situation: Changes in your financial situation or that of your contingent beneficiary may require updates to your estate plan.
Change in estate planning goals: If your estate planning goals change, such as a desire to support a different charitable organization, you may want to update your contingent beneficiary designation.
To update your contingent beneficiary designation, you will need to review and update your estate planning documents, such as your will, trust, or beneficiary designation forms. It’s important to ensure that your updated designation is clear, unambiguous, and legally valid.
It’s important to regularly review and update your estate plan, including your contingent beneficiary designation, to ensure that your plan meets your current needs and goals. An experienced estate planning attorney can help ensure that your estate plan is properly updated and reflects your wishes.
How Often Should You Review Your Contingent Beneficiary Designation?
It’s important to regularly review and update your contingent beneficiary designation to ensure that it reflects your current wishes and circumstances. Here are some guidelines for how often you should review your contingent beneficiary designation:
After major life events: Major life events, such as marriage, divorce, the birth of a child, or the death of a beneficiary, can impact your estate plan and may require updates to your contingent beneficiary designation.
Every few years: It’s a good idea to review your estate plan, including your contingent beneficiary designation, every few years to ensure that it still aligns with your goals and wishes.
When laws change: Changes in state or federal laws can impact your estate plan and may require updates to your contingent beneficiary designation.
When financial circumstances change: If your financial situation or that of your contingent beneficiary changes significantly, you may want to review and update your contingent beneficiary designation.
When you move: If you move to a new state, it’s important to review your estate plan, including your contingent beneficiary designation, to ensure that it is still valid and legally enforceable.
Regularly reviewing and updating your contingent beneficiary designation can help ensure that your estate plan is effective and meets your needs and goals. An experienced estate planning attorney can provide guidance and assistance in reviewing and updating your estate plan.
