A contingent beneficiary is an individual designated by an asset owner or financial account holder to receive the benefit of an asset if the primary beneficiary is unable to accept the assets. This is because any person who is the beneficiary of a will may be entitled to property under certain conditions. These prior obligations reduce the chances that you’ll receive anything if they’re not satisfied, but it’s important for everyone in this position to know what their options are as soon as possible.
When a contingent beneficiary is specified by an account holder or asset owner in a will, the proceeds or benefits of the financial account or assets are transferred to a contingent beneficiary if the primary beneficiary cannot accept the benefits. The primary beneficiary may not accept the assets if he is dead or has become legally incapacitated to receive the benefit of the assets.
Who is Eligible to be a Contingent Beneficiary?
A financial account holder or asset owner may appoint an individual, organization, or a trust as the contingent beneficiary. The individual may be trustworthy, such as a next of kin or a close associate.
The individual must be qualified legally for accepting such assets. An example of such legal qualification is that a person listed as a contingent beneficiary must be of legal age.
If he is a minor, a legal guardian should oversee the assets until the minor attains a legal age.
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Contingent Beneficiaries’ Characteristics
Individuals, organizations, trusts, and estates can all be referred to as contingent beneficiaries. Minor children and pets are ineligible because they lack the legal authority to accept assets that have been assigned to them. An appointed legal guardian must be appointed to manage the money until the minor reaches the age of legal responsibility. In addition to immediate family members, close acquaintances and other relatives are often specified as contingent beneficiaries.
A policy of life insurance or a retirement account may designate any contingent beneficiaries. There is a specified percentage for each beneficiary.
Properties That Can Be Designated To A Contingent Beneficiary
While drafting a will, the following properties can be designated to a contingent beneficiary:
- Personal property such as your vehicle, high-end jewelry, artwork, furniture.
- Businesses such as your company.
- Real estate property such as your home apartment.
- Financial assets such as cash and stocks.
- Family heirlooms or personal items
- Pets such as dogs and cats.
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How Contingent Beneficiary Works
An asset owner appoints a primary beneficiary. A primary beneficiary is an individual appointed or listed in a contract to receive the benefit of an asset or financial account. An asset owner may also nominate a contingent beneficiary. A contingent beneficiary receives the benefit of the assets if the primary beneficiary is dead or does not have the legal capacity to claim it.
For example, Charles lists his wife, Julie, as the primary beneficiary of his real estate asset. Charles may also list their only daughter as a contingent beneficiary of the assets. When Charles dies, Julie receives the benefit of the real estate asset. It becomes hers, and their daughter receives nothing. However, if Julie does not have the legal capacity to claim the assets, their only daughter will receive the assets being the contingent beneficiary.
A contingent beneficiary receives nothing if the primary beneficiary accepts the asset.
How To Choose A Contingent Beneficiary
When drafting your will, create a separate document with every asset you own and keep it safe. Then select a person you want to receive each item of property and lay claim to the assets in your will. This person is referred to as the primary beneficiary.
After the selection of a primary beneficiary,
Assign a contingent beneficiary, an individual you want to receive the benefit of the assets if your primary beneficiary lost the legal capacity to accept the assets. Such individuals may be the next of kin of your primary beneficiary.
Your primary or contingent beneficiary may also be a charity organization.
Lifespan of a Contingent Beneficiary’s Duties
When an asset is due to be claimed, and the primary beneficiary of the assets is alive and has the legal capacity to accept and receive it, he can accept and receive the assets.
If the primary beneficiary receives the assets, the contingent beneficiary is automatically disqualified from receiving the benefit of the asset.
Hence, the hope of the contingent beneficiary on receiving an asset ends when the primary beneficiary accepts the assets.
Uses Of A Contingent Beneficiary
It is very important to designate a contingent beneficiary for one’s assets. The contingent beneficiary takes over the assets in case of the death or legal incapacity of the primary beneficiary.
This helps to save the owner’s family of the original assets from time and expenses spent on probate.
Probate is the legal process of distributing the assets of the deceased owner to the intended beneficiary.
The court usually determines this. Probate may take many years and can be quite expensive. Appointing a contingent beneficiary will save the family from it.
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