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What is a contingent beneficiary, and why do you need one?

On Behalf of | Jan 9, 2023 | Estate Administration

When a person passes away in Florida, their will dictates who will inherit their assets. Some assets, such as retirement accounts, cannot be bequeathed in a will. Instead, the account passes on to whoever the owner names as a beneficiary. It is also wise to name an additional person as a secondary beneficiary.

Understanding contingent beneficiaries

A contingent beneficiary is an alternate person you name to inherit your assets. Normally, you have to choose this second person in the event that something happens to your first-choice beneficiary. When you have a retirement plan, IRA or 401(k) account, life insurance policy or other similar financial accounts, you will want to leave the proceeds to a trusted loved one. This person might be your spouse, a child, a family member or even a close friend.

How contingent beneficiaries work

If your primary beneficiary passes away or cannot be found, they cannot inherit your assets. This is why you need a contingent or secondary beneficiary named. If either of the previously-mentioned scenarios applies to your first choice, this alternate person receives your assets instead.

For example, you have a life insurance policy and choose your spouse as the primary beneficiary. If you die and your spouse survives, they will receive the funds from the policy. However, if you fail to choose a contingent beneficiary and your spouse passes away before you, you won’t have anyone to inherit those assets. On the other hand, with a contingent beneficiary, if your spouse dies, that other person receives the proceeds from your life insurance policy.

Naming a contingent beneficiary also helps with estate administration. It prevents the court from having to track down family members who might not have wished to inherit your assets. When you name a secondary beneficiary, that person can receive them.

Choosing a contingent beneficiary in addition to your first choice can provide you and your family with added peace of mind.