What Is a Contingent Beneficiary?
In estate planning, it is dangerous to assume that the people you want to inherit your wealth will outlive you. When drafting a Last Will and Testament, creating a living trust, or filling out a life insurance policy, you will name a primary beneficiary (the person who gets the money first).
A contingent beneficiary (often called a secondary beneficiary) acts as the backup plan. They only inherit the asset if the primary beneficiary has already passed away, cannot be located, or legally refuses (disclaims) the inheritance.
The Importance in Real Estate and Trusts
Failing to name a contingent beneficiary can lead to disastrous financial consequences:
- Life Insurance and Bank Accounts — If a husband names his wife as the sole primary beneficiary on a $1 million life insurance policy, but they both die simultaneously in a car crash, there is no living beneficiary. Without a contingent beneficiary named on the policy, the $1 million is dumped directly into the husband's probate estate, where it can be heavily taxed, delayed by court proceedings for a year, or seized by his creditors.
- Enhanced Life Estate (Lady Bird) Deeds — Florida homeowners often use special deeds to automatically pass their house to a child upon their death, avoiding probate. If the deed only names one child as the 'remainderman' (primary beneficiary), and that child dies first, the deed fails, and the house must go through probate. Naming a contingent beneficiary on the deed ensures a smooth transition.
Multiple Contingent Beneficiaries
You are not limited to one backup plan. You can name multiple contingent beneficiaries and dictate the exact percentages they receive. For example, a primary beneficiary could be a spouse (100%), and the contingent beneficiaries could be three children (33.3% each). You can also name a charity or a university as the ultimate contingent beneficiary if your entire bloodline is wiped out.
Related Terms
- Beneficiary — The overarching term for anyone inheriting an asset
- Living Trust — A legal entity that utilizes contingent beneficiaries to avoid probate
- Probate — The expensive court process triggered if all beneficiaries die
Barnes Walker Estate Planning
Barnes Walker's estate planning attorneys meticulously structure wills, trusts, and real estate deeds with robust layers of contingent beneficiaries, ensuring our clients' wealth bypasses probate court and is protected from creditors, even in the event of unexpected family tragedies. Request a legal inquiry for assistance.
Florida Law Reference
Fla. Stat. Ch. 736 (Florida Trust Code)
The Florida Trust Code governs the creation, modification, and administration of trusts, including trustee duties, beneficiary rights, and trust termination.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC