Secondary Beneficiary

What Is a Secondary Beneficiary?

A secondary beneficiary, also known as a contingent beneficiary, is a person or entity that inherits assets under a will, trust, or account (e.g., insurance policy or annuity) when the primary beneficiary dies before the grantor.

A secondary or contingent beneficiary inherits assets only when meeting certain conditions, such as the death of the primary beneficiary or the primary beneficiary's decision to disclaim their inheritance. If a primary beneficiary cannot be found at the time of the grantor’s death, the assets could pass to the secondary beneficiary. The requirements and time to locate the primary beneficiary vary according to the account or legal document governing the assets.

Understanding Secondary Beneficiaries

Parties may also name secondary beneficiaries for retirement accounts or other investment and retirement vehicles; doing so can avoid probate if the primary beneficiary cannot inherit the assets. For example, upon the issuance of an insurance policy, annuity, 401(k), 529 college savings plan, health savings account (HSA), or trust, the account holder names who or what (e.g., trust or charity) he wants to receive the assets upon death. Sometimes, the named parties can receive the assets if the account holder is incapacitated. In these scenarios, it is often possible to name more than one primary or contingent beneficiary, allocating percentages among those selected. Many policies prohibit allocating amounts as values may change over the life of the account and can, therefore, create problems upon death.

Designating beneficiaries can be a sophisticated process. For example, some accounts allow for per-stirpes designations, in which a beneficiary's heirs receive the apportioned assets if the beneficiary predeceased the account holder.

Special Considerations

A will is a legally enforceable declaration that details how a person wishes to distribute their assets at death. Although its format varies, most follow a fairly uniform layout, starting with a statement that the testator, who must be at least 18 years of age or married, is of legal age and making the will of their own sound volition. Also, the will names an executor (the person who executes or carries out the will), a guardian for minor children, and the beneficiary(ies). For example, a will could itemize bank accounts and divvy up property among several individuals. Assets that are jointly owned are also split up accordingly. In a will, it is critical to be as clear and specific as possible to avoid legal challenges and related expenses.

Most states require the presence of witnesses at the execution of the will. In Iowa, for example, a valid will must have two competent witnesses, at least 16 years of age. These individuals must sign the will in the presence of both the testator and each other. Also, the testator must verbally attest before the witnesses that it is his or her will.

In some cases, a will can be self-proved. This can happen if, at the time of its creation, both the testator and witnesses sign affidavits that describe how the will was executed. In all cases, it is recommended to have the assistance of an attorney to be sure that the will is valid and its instructions are carried out as desired.