A contingent beneficiary is the alternative choice to receive the proceeds of a beneficiary-named financial account if the primary beneficiary is not alive to accept the benefits of the account at the time they are paid.
Essentially, a contingent beneficiary is second in line after the primary beneficiary or beneficiaries to inherit assets from accounts such as 401(k)s, individual retirement accounts, life insurance and annuity policies and trust accounts. Because these accounts include named beneficiaries, they are not gifted or inherited through a will. The names on the accounts serve as instructions that override any other will or instructional document you create.
The owner of the financial account selects primary and contingent beneficiaries upon opening the account, insurance policy or trust. With a 401(k) or IRA, changing a beneficiary is as easy as calling your plan administrator or broker and completing some simple paperwork. If the life insurance policy or trust is revocable, the named beneficiaries can be changed by the account holder at any time.
It is important to keep beneficiaries up to date. The important beneficiaries in your life can change as you get older, marry, start a family, divorce or experience a death. The beneficiaries you would choose for your first 401(k) in your early 20s may not be the same beneficiaries you would choose in your 40s, for example. Remind yourself to check beneficiaries regularly, or review them after major life changes.
There is another type of contingent beneficiary. With certain trusts structured with built-in incentives, a beneficiary may have to meet a certain contingency before assets are paid. For example, a child must complete college or turn age 25 before becoming a beneficiary of trust assets.
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