A secondary beneficiary, sometimes called a contingent beneficiary, is a person or entity entitled to receive assets from an estate or trust after the estate owner’s death if the primary beneficiary is unable or unwilling to accept the assets. Secondary beneficiaries can be relatives or other people. Still, they can also be trusts, charities, or other organizations, as explained in the recent article titled “What You Need to Know About Secondary or Contingent Beneficiaries” from yahoo! Life.
As estate planning lawyers, we can help you decide whether you need a secondary beneficiary for your estate plan or for any trusts you create. Chances are, you do.
Beneficiaries are commonly named in wills and trust documents. They are also used in life insurance policies and retirement accounts. After the account owner dies, the assets are distributed to beneficiaries as described in the legal documents.
A primary beneficiary is a person or entity with the first claim to assets. However, there are times when the primary beneficiary does not accept the assets, can’t be located, or has predeceased the estate owner.
A secondary beneficiary will receive the assets in this situation. They are also referred to as the “remainderman.”
In many cases, more than one contingent beneficiary is named. Multiple secondary beneficiaries might be entitled to receive a certain percentage of the entire estate’s value. More than one secondary beneficiary may also be directed to receive a portion of an individual asset, such as a family home.
Estate planning attorneys may even name an additional set of beneficiaries, usually tertiary beneficiaries. They receive assets if the secondary beneficiaries are not available or unwilling to accept the assets. In some cases, estate planning attorneys name a remote contingent beneficiary who will only become involved if all primary, secondary, and other beneficiaries can’t or won’t accept assets.
For example, a person may specify their spouse as the primary beneficiary and children as secondary beneficiaries. A more remote relative, like a cousin, might be named as a tertiary beneficiary, while a charity could be named as a remote contingent beneficiary.
Almost any asset can be bequeathed by naming beneficiaries. This includes assets like real estate (in some states), IRAs and other retirement accounts, life insurance proceeds, annuities, securities, cash, and other assets.
Naming a secondary beneficiary ensures that your wishes, as expressed in your will, will be carried out even if the primary beneficiary cannot or does not wish to accept the inheritance. Lacking a secondary beneficiary, the estate assets will have to go through the probate process. Depending on the state’s laws, having a secondary beneficiary avoids having the estate distribution governed by intestate succession. Assets could go to someone who you don’t want to inherit them!
This week we met with a family whose parents died within weeks of one another. When Dad died, Mom was the primary beneficiary but didn’t survive long enough to file claims or roll over retirement funds. Those payable to her will go through probate. The once payable to Dad will also, as he named no secondary beneficiary.
We have learned from painful lessons like this not to assume there is a secondary beneficiary or that it is correct. Several years ago, a 90-year-old client of ours died. He had a government life insurance policy, naming his wife as the primary beneficiary. She had died years before. The secondary beneficiaries were his parents, named when his children were toddlers. To get a payout from the policy, we needed to prove the parents were dead. Finding and producing that proof was difficult as they had both died decades before.
Talk with your estate planning attorney about naming secondary, tertiary, and remote beneficiaries.
Reference: yahoo! life (Jan. 4, 2023) “What You Need to Know About Secondary or Contingent Beneficiaries”