Contingent Beneficiary vs Primary Beneficiary: What’s the Difference?

Updated January 30, 2024
6 min read

When listing your assets as part of the estate planning process, you will likely find yourself considering your beneficiaries. Whether you have been preparing a living trust, updating retirement accounts, or purchasing a new life insurance policy, you have probably heard the term beneficiary. However, less familiar may be contingent vs primary beneficiaries. 

What Is the Definition of Beneficiaries?

A beneficiary receives assets, property, or other benefits from a deceased person. A beneficiary may be named as part of a will or trust to receive something from the deceased. Typically, the estate plan documents will explain what a beneficiary is entitled to, such as life insurance benefits, property, an art collection, or other assets. 

Primary beneficiary meaning?

A primary beneficiary is a person selected to receive assets or a payout from a life insurance policy or trust. A beneficiary is usually someone close to the deceased, such as a spouse or adult child.

Contingent beneficiary meaning

A person might ask what the contingent beneficiary status is during estate planning. A contingent beneficiary, who may be the beneficiary under certain conditions, is essentially designated as a backup plan if the primary beneficiary is no longer available. A contingent beneficiary becomes the beneficiary if the first choice cannot fill the role.

When making estate plans, a person might choose their spouse as a primary beneficiary and name the couple’s child as the contingent beneficiary. The spouse would be entitled to all of the deceased’s assets. However, if the spouse had already passed away or could not be located, the child — the contingent beneficiary — would inherit the assets.

What is the difference between primary and contingent beneficiary?

The main difference between contingent vs primary beneficiary is the order in which they inherit. A primary beneficiary is the first person entitled to receive the estate. The contingent beneficiary receives the estate if certain contingencies are met regarding the primary beneficiary.

What about secondary beneficiaries?

Another issue that may arise as part of estate planning is understanding the contingent vs primary beneficiary. The primary beneficiary does not have to be only one person. Primary simply refers to the first in line, but it can apply to multiple heirs or beneficiaries. When establishing a primary beneficiary, you can name all your children or siblings and list how to distribute the assets. 

If Linda has one child and two siblings, she can name all three primary beneficiaries. Her child, the primary beneficiary, would inherit her home and investments. Other belongings and assets would be divided equally among the primary and secondary beneficiaries or sold for the proceeds to be divided equally among them.

Who Can and Cannot Be a Beneficiary?

When planning your estate, you can name anyone as a beneficiary, contingent vs primary. Beneficiaries can be a person’s child, spouse, friend, family member, a non-profit organization, etc. However, a person cannot name a pet as a primary or contingent beneficiary. To provide for a pet upon the owner’s death, the owner can set up a trust for the pet, naming a person or organization to be in charge of that trust for the benefit of the pet. That trustee would then be responsible for using the money appropriately.

It is essential to recognize the legal requirements for your state. Some states require that beneficiaries be at least 18 years of age, and minors must have a legal guardian to control the assets until they reach legal age. If a legal guardian is not named, then one must be appointed by the probate court, which can be time-consuming, stressful, and more expensive than other options.

Now consider the example of Linda above but with a contingent beneficiary. Linda names her child and two siblings as primary beneficiaries, using the same rules as above for distributing her assets. She also names her brother-in-law as the contingent beneficiary, meaning that the brother-in-law would inherit all of her belongings if her child and her two siblings passed away or could not be located. 

Primary vs Contingent Beneficiary

During the estate planning process, it may be challenging to determine a primary vs contingent beneficiary. You might wonder whether you need both a primary and contingent beneficiary or just one over the other. 

When making estate plans, a person is not obligated to name a contingent vs primary beneficiary. However, suppose the primary beneficiary or has already passed away cannot be located. In that case, the estate must pass to the next heir in line according to the probate court, even if that may be against the deceased’s wishes. 

This can cause conflict within the family, delays to the probate process, and higher costs as it can take away a portion of the estate to cover legal fees. 

If possible, it is helpful to name a contingent beneficiary. This means the family can avoid some of these problems if the primary is unavailable.

John has a $500,000 life insurance policy, a home valued at $800,000, a small coin collection, and one car. His will states that his son and daughter are the primary beneficiaries, and his current spouse is the contingent beneficiary. Therefore, his children will divide the life insurance policy, home, coins, and car when John passes away. However, if John passes away after his children or if his children cannot be found, then John’s current spouse would inherit all of his estates. 

Most people name a spouse as the primary beneficiary and the children as contingent beneficiaries. This is typical because the spouse might still oversee the children. If one spouse dies, the other can keep the house and car and use any life insurance payments or other assets to continue providing for the family. 

How to Change Beneficiaries

Your estate plan is a living document to which changes can be made anytime as long as you are still alive and of sound mind. You can reevaluate your situation and change beneficiaries or inheritances in any of the following situations and more:

  • When you get married

  • When you have children

  • When you get divorced

  • When your children graduate school

  • When you get a new pet

  • When you acquire a new asset

While you are still alive, a beneficiary won’t have any legal rights to your assets.

Warning

Sometimes, beneficiaries don’t even know they are a beneficiary, so they can change beneficiaries at any time on almost all accounts, including retirement accounts or life insurance policies. Only in a situation involving an irrevocable trust or account can the grantor not change beneficiaries once they are chosen. 

Other factors to consider are certain retirement accounts, such as 401(k)s or IRAs, which might make it easier to change the names of beneficiaries. These types of accounts, however, might come with tax consequences, especially if changing a beneficiary from children to a spouse. 

Why Primary and Contingent Beneficiary Designations Matter

Primary and contingent beneficiary designations are a crucial component of the estate planning process. It is essential to designate beneficiaries to receive the proceeds of an insurance policy after the policyholder passes away.

A primary beneficiary is a person who will receive the insurance proceeds in the event of the policyholder’s death. A contingent beneficiary will receive the proceeds if the primary beneficiary dies before the policyholder. Having both primary and contingent beneficiaries designated helps to ensure that the insurance proceeds will be distributed according to the policyholder’s wishes.

It is important to review your beneficiary designations regularly and ensure that they are up to date. Changes in a person’s life circumstances, such as marriage, divorce, or the birth of a child, may require an update to a person’s beneficiary designations.

In addition to primary and contingent beneficiaries, many people consider naming secondary and tertiary beneficiaries. This will ensure that the insurance policy proceeds are distributed as intended, even if the primary and contingent beneficiaries cannot receive them. By carefully considering your beneficiary designations, you can ensure that your loved ones will be provided for in the event of your death.

Conclusion

What is the difference between primary and contingent beneficiary? Understanding the contingent beneficiary meaning can help a person prepare their estate effectively. By carefully naming primary and contingent beneficiaries or changing beneficiaries as life circumstances change, you can protect your estate from unnecessary litigation in probate court and ensure that your heirs will receive the inheritance you intended. If you have questions about changing your beneficiaries or who to name, consider speaking with an experienced estate planning attorney.

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