What is a contingent beneficiary?

If you’ve ever made a will or taken out a life insurance policy, you may have come across the term “contingent beneficiary” and wondered what it was, and whether you needed one.

A beneficiary is a person you designate in your will or revocable living trust to receive property from your estate when you pass away. You can designate specific beneficiaries to inherit any property and assets in your estate — including real estate, financial accounts, and more. You can also name beneficiaries for assets that are able to skip probate, like life insurance policies and 401(k) accounts. The first person or organization you name to receive an asset is the primary beneficiary.

A contingent beneficiary — sometimes called a secondary beneficiary — is the person or organization next in line to receive assets if your primary beneficiary isn’t able to. As with primary beneficiaries, you can name contingent beneficiaries in your will or trust, and also for assets that are able to skip probate.

Having a contingent beneficiary generally won’t impact your primary beneficiary. Your contingent beneficiary will only receive your property if your primary beneficiary can’t — for example, if they pass away before you or choose not to inherit.

Why should you name contingent beneficiaries?

There could be a situation where your primary beneficiary isn’t able to inherit your assets. For example, they may pass away before you, or decline the assets you leave to them (known as “disclaiming”). If you haven’t listed a contingent beneficiary, a court will apply state laws to decide who should receive your assets. By naming a contingent beneficiary, you set clear expectations about who should inherit your property in the event your first choice cannot.

For example, say you want your life insurance payout to go to your spouse if you were to pass away, so you name them as the primary beneficiary. Then you list your favorite nonprofit as your contingent beneficiary. If your spouse were to pass away before you, then the proceeds from your life insurance policy would go to your designated charity of choice.

Who can be a contingent beneficiary?

Any person or entity that can be a primary beneficiary can also be a contingent beneficiary. This includes:

• Any person, like your spouse, child(ren), relatives, or friends. You don’t have to be related to someone to name them as a beneficiary in your will.
• A charity or nonprofit organization. Many people are surprised to learn you can donate part of your estate to a charity in your will. It’s a meaningful, effective way to create a lasting legacy, both for yourself and for causes that are closest to your heart.

In a handful of states, beneficiaries who inherit from a non-relative must pay an inheritance tax on their assets. If you want to name a non-relative as a beneficiary in your will, you may consider working with an estate attorney to determine any tax consequences. On the other hand, any assets you leave directly to a charity are exempt from inheritance tax, no matter which state you live in.

When choosing beneficiaries, keep in mind that a minor generally isn't able to own property until they become an adult (which is usually at age 18). If you have young children and want to name them as beneficiaries in your will, you may also want to name a financial guardian who will manage their inheritance until they come of age. You also can’t list pets as beneficiaries — they’re considered property under the law, so they can’t inherit assets directly (although you can set up a pet trust to provide for their care after your death).

What property can you give to a contingent beneficiary in your will?

In your will, you can name a beneficiary for any property that’s part of your probate estate. (Property in your “probate estate” has to go through the probate process before your beneficiary can claim ownership.) You can name a contingent beneficiary for each asset, as well. This includes:

• Real estate property, like your home
• Financial assets, like cash, stocks, and bonds
• Personal property, like your vehicle, jewelry, artwork, furniture, and clothing
• Pets (they often feel like members of the family, but they’re considered property under the law)
• Family heirlooms or personal items

Can you have more than one contingent beneficiary?

Yes — you can name a contingent beneficiary for each asset you own. You can also name multiple contingent beneficiaries for a single asset, and state the percentage each contingent beneficiary should receive. (Remember that your contingent beneficiaries will only inherit the asset if your primary beneficiary or beneficiaries are unable to.)

What happens if you don’t name contingent beneficiaries for your assets?

If you don’t name a contingent beneficiary and your primary beneficiary is unable to inherit, then state guidelines will likely determine who should receive the asset. The order of succession usually prioritizes your surviving spouse or domestic partner, followed by your children, then parents, siblings, and extended family members. For many people, this default distribution is different from what they would’ve chosen for themselves.

If you don’t name a contingent beneficiary for your non-probate assets, there may be a default contingent beneficiary (for example, your estate) put in place for you. In addition to not being what you’d prefer, this may also have negative tax implications for your estate beneficiaries.

Choosing contingent beneficiaries for assets that skip probate

There are certain accounts that are typically passed on to your beneficiaries outside of your will, without having to go through the probate process. These assets are called non-probate assets, and can include your life insurance policies, 401(k)s or IRAs, pensions, and certain bank accounts.

Naming beneficiaries for your non-probate assets is a separate process from naming beneficiaries in your will. You can learn more about that process here.

How to designate a contingent beneficiary in your will

When making your will, consider writing out a list of every asset you own in a separate document. Then decide which individual or organization you want to receive each piece of property, and include that information in your will.

Once you’ve chosen a primary beneficiary for each of your assets, consider who you’d like to receive your property if your first choice wasn’t available. Some will-makers choose their contingent beneficiary to be the “next of kin” of their primary beneficiary (for example, their primary beneficiary’s children or grandchildren). Others choose to name a favorite charity.

If you use FreeWill to make your will, we include step-by-step instructions for listing primary and contingent beneficiaries for each of your assets. Our free online will-making tool also makes it simple to leave assets in your will to your favorite charities.

Interested in naming a beneficiary for your 401(k), IRA, or life insurance policy? Read our guide to naming beneficiaries for assets that skip probate.