once again a metaphor

Contingent Beneficiaries: What are they really?

Legal documents can be perplexing to the untrained eye. Addendums and sub-clauses are enough to spin a layman in circles ten times over. Add to this situation a subject matter that acts as a stressor, and you have a recipe for disaster on your hands. This can be the case in many decisions dealing with 401k plans.

Which brings us to the case of the contingent beneficiary. This is a term that will come up when designing 401k. Of course, hiring a legal consultant is always recommended- the value they offer you in deciphering any legal document simply cannot be overstated.

The thing is, with legal consultants, time translates literally to money. The more things you need them to explain to you, the longer it will take, and thus the more you will owe them in compensation. That’s why learning the basics beforehand is equally crucial to getting through any retirement planning situation.

Here are some of the most frequently asked questions when dealing with life insurance policies, focusing on contingent beneficiaries. We will start with the most elementary understandings to build you up to a basic understanding, and save you time and money with a legal consultant.

What is a Contingent Beneficiary?

A contingent beneficiary is actually a more simple matter than it might initially seem. It is a destination for a portion of a person’s assets upon their death. It’s a way for a person to ensure that their belongings and money are not lost in probate, the legal process in which a court decides where to distribute these things after someone’s death. In the event that a primary beneficiary cannot inherit what was designated to them by the deceased, the contingent beneficiary receives a specified portion of it.

A person can name a contingent beneficiary in either their will or a 401k plan. The details of what this means will vary wildly from one case to the next. It is all dependent on what the deceased specified in their will or 401k.

A contingent beneficiary can be a person. The person naming said beneficiary in their will may choose a spouse, child, other relative, or even a good friend. In the event a minor is chosen, a guardian will also be assigned to watch over the inheritance until the beneficiary comes of legal age to access it.

A contingent beneficiary can also be an estate or organization. The amount of the deceased’s assets this person, estate, or organization receives is also specified in the deceased’s will or 401k. This means multiple beneficiaries can be chosen, each to receive a set amount. This is common when a person’s children are listed as contingent beneficiaries, to avoid uneven distribution.

What is the Difference Between a Primary and Contingent Beneficiary?

Now that we have a basic understanding of a contingent beneficiary, let’s take a look at the differences between that and a primary beneficiary. Bolded statements indicate a difference between the two. To recap:

A Contingent Beneficiary is…

  • One or more persons, estates, or organizations named in someone’s will or 401k
  • Given a specified percentage of a person’s assets
  • Used in probate only if the primary beneficiary is unable or unwilling to receive what they were assigned in a person’s will

Now let’s compare those characteristics to that of a primary beneficiary.

A Primary Beneficiary is…

  • One or more persons, estates, or organizations named in someone’s will or 401k
  • Given a specified percentage of a person’s assets
  • Used in probate first to distribute a person’s assets upon their death.

Viewing these two designations side-by-side, it becomes clear that there isn’t much actually different about them. A beneficiary is someone who receives an assigned portion of a deceased person’s assets, as described in their will or 401k. A contingent beneficiary is really what it sounds like, a contingency in case the primary beneficiary is unable to receive their own assigned percentage of someone’s assets.


How do I Choose a Contingent Beneficiary for my 401k?


You’re thinking about retirement. That’s great! There is, however, much more to the concept than kicking your feet up in your hard-earned cumulative safety net. The fact is that many people will not spend all of their retirement fund before the end of their life. It’s always wise to set up beneficiaries in your 401k plan, lest the people you never knew in the government be left to divvy up your belongings.


Using what we learned from the last question, we know that contingent beneficiaries are just what they sound like. An extra layer of safety to ensure that someone you want to have your money and things actually gets them. So what makes someone a good candidate to be a contingent beneficiary?


This will be a very different answer for different people. You may have a spouse and children. You may not. You may have close friends whom you trust with your assets. A great rule of thumb that truly applies to most cases, however, is to pick someone younger than your primary beneficiary.


Think about the conditions for a contingent beneficiary to receive assets. It only happens if your primary beneficiary cannot or will not receive what was assigned to them. The most likely thing to prevent them from inheriting what was assigned is, morbid as it is, death. To ensure that your assets aren’t lost in probate, make sure your contingent beneficiary is younger than your primary. It isn’t impossible, but is much less likely that a significantly younger person will also die close in time to you.


Unquestionable Benefits


What to do about retirement and how to prepare for the end aren’t subjects that many people enjoy talking about. They might even be topics that some actively avoid. Whether or not you’re ready to embrace the boredom or mortality, though, you should at least talk over these things with a legal consultant. Now you’re armed with the knowledge to make it a more direct, succinct conversation!


Of course no one wants their money and things to be seized by the government. Assigning a beneficiary should be a no-brainer. But assigning a contingent beneficiary isn’t to be overlooked either! Ensuring that your legacy passes down to the right person is essential, and something everyone should consider when planning a 401k or writing their will.

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