In addition to naming a beneficiary or beneficiaries, all too often people forget to name a contingent beneficiary. A contingent or secondary beneficiary is the person who collects the account or insurance payout if none of your primary beneficiaries are around to accept the benefit. Naming at least one contingent beneficiary protects your account or insurance proceeds from paying into your estate and entering a lengthy legal process or being taken by creditors. Generally state law and regulations prevent creditors from taking the benefit from your beneficiaries even if you have outstanding debts. Only the people listed as beneficiaries or contingent beneficiaries can receive a payout, and not creditors. Creditors can take the benefit if it becomes part of your estate, which happens if:

All of your beneficiaries die before you and you did not name a contingent beneficiary or beneficiaries.

You list your estate as a beneficiary.

What does contingent beneficiary mean? Think of it as the just-in-case option. If the primary beneficiary dies before you, the contingent beneficiary receives the benefit. Here’s how it works:

Primary beneficiaries: You will name at least one person as a primary beneficiary. This is often a spouse, registered domestic partner or someone else who you want to receive your payout above all others. You can list more than one. In that case, the funds are divided equally among them, or you can specify how to divide up the money.

Contingent beneficiaries: A contingent beneficiary is a person or persons next in line to receive a payout. This could be just one person or more than one. The only time the contingent beneficiary receives any funds is if the primary beneficiary or beneficiaries are unable to do so.

For example, a husband and wife or registered domestic partners have named each other as beneficiaries on an account, such as an IRA, or a life insurance policy, and one of them predeceases the other. If a contingent beneficiary is not named, depending on the amount in the account as of the date of death, the account may be subject to formal probate. Remember, naming a contingent beneficiary also applies to life insurance. When you apply for life insurance, you will be asked to list a primary beneficiary for your policy, along with any additional primary and contingent beneficiaries.

Also, it is important to understand that a beneficiary designation supersede one’s Will and/or Trust. Your Will or Trust will not override the beneficiary designation on an account and/or policy and upon your death it will pass by operation of law to the named beneficiary(ies) or contingent beneficiaries in the event the primary named beneficiary, or beneficiary(ies) is not surviving.

Understanding the issues discussed in this article requires the assistance of a qualified probate attorney who can better assess the appropriate course of action. If you are the executor or other nominated person in a Will, or there is no Will, and you wish to gain more information please contact me for a free consultation. I will spend time with you to answer your questions.

From my office in Southern California, I represent families in all California counties, including Southern California Counties such as Imperial County, Los Angeles County, San Bernardino County, and San Diego County. I also represent parties residing outside of California, including foreign countries, that have probate matters affecting real and/or personal property in California.