Specifying primary and contingent beneficiaries is one of the best ways to ensure that your assets are managed in accordance with your wishes. Recognize the differences between the two so that you can choose wisely.
Freelance writer and editor Michelle Kaminsky, Esq. has been working with LegalZoom since 2004. She earned a Jur.
A primary beneficiary is the first person or organization to inherit assets from a life insurance policy, retirement account, or living trust after your death. You ought to designate a contingent beneficiary, or the next person or organization in line, in case the original beneficiary passes away before you do or is unable to be found to receive the assets. By doing this, you can prevent the possibility that your assets will go through probate, which could increase the costs to your estate and cause a delay in the beneficiaries receiving their inheritance.
Understanding Beneficiaries in Estate Planning
Estate planning is the process of creating a plan to manage your assets and ensure that your wishes are carried out after your death. One of the most important aspects of estate planning is naming beneficiaries, the individuals or entities who will inherit your assets.
There are two main types of beneficiaries:
- Primary beneficiaries: These are the individuals or entities who will receive your assets if you die. You can name multiple primary beneficiaries, and you can specify the percentage of your assets that each beneficiary will receive.
- Contingent beneficiaries: These are the individuals or entities who will receive your assets if your primary beneficiaries are unable or unwilling to do so. For example, if your primary beneficiary dies before you, your contingent beneficiary will receive your assets.
Can You Have 3 Primary Beneficiaries?
Yes, you can have 3 primary beneficiaries. In fact, you can have as many primary beneficiaries as you want. However, it is important to make sure that the total percentage of your assets that you designate to your primary beneficiaries adds up to 100%.
For example, if you have three primary beneficiaries and you want each of them to receive an equal share of your assets, you would designate 33.33% to each beneficiary. If you want one beneficiary to receive a larger share than the others, you can designate a higher percentage to that beneficiary.
How to Designate Multiple Primary Beneficiaries
To designate multiple primary beneficiaries, you will need to update your estate planning documents, such as your will, trust, or life insurance policy. You can do this by working with an attorney or by using a do-it-yourself estate planning kit.
When you are designating multiple primary beneficiaries, it is important to be clear about how you want your assets to be divided. You should also consider naming a contingent beneficiary in case one of your primary beneficiaries is unable or unwilling to receive your assets.
Advantages of Having Multiple Primary Beneficiaries
There are several advantages to having multiple primary beneficiaries:
- It can help to ensure that your assets are distributed according to your wishes. By naming multiple primary beneficiaries, you can ensure that your assets are divided among the people or entities that you care about most.
- It can help to avoid probate. If you have a will that names multiple primary beneficiaries, your assets will likely be distributed without having to go through probate court. This can save your family time and money.
- It can provide for the needs of multiple people. If you have multiple family members or other loved ones who depend on you financially, naming multiple primary beneficiaries can help to ensure that they are all taken care of after your death.
Disadvantages of Having Multiple Primary Beneficiaries
There are also a few potential disadvantages to having multiple primary beneficiaries:
- It can be more complex to manage. If you have multiple primary beneficiaries, you will need to make sure that your estate planning documents are clear and up-to-date. You may also need to work with an attorney or financial advisor to help you manage your assets.
- There is a risk of conflict. If you have multiple primary beneficiaries, there is a risk that they may disagree about how your assets should be divided. This could lead to conflict and litigation.
- It may not be appropriate for everyone. If you have a small estate or if you have only one or two people who you want to inherit your assets, it may not be necessary to name multiple primary beneficiaries.
Ultimately, the decision of whether or not to have multiple primary beneficiaries is a personal one. There is no right or wrong answer, and the best decision for you will depend on your individual circumstances. If you are considering naming multiple primary beneficiaries, it is important to talk to an attorney or financial advisor to get professional advice.
Understanding types of beneficiaries
The person or organization with the first claim to inherit the asset following your death is known as the primary beneficiary. Even though the term “primary” refers to one beneficiary, you are free to name more and specify how the assets will be distributed among them.
In contrast, a contingent beneficiary is the next in line to inherit the asset. A contingent beneficiary can only receive an inheritance from an account or policy in the event that the primary beneficiary or beneficiaries have passed away or are otherwise unlocatable.
For instance, if you have two children and designate your daughter as the contingent beneficiary and your son as the primary, or principal, beneficiary, only your son will receive the assets upon your death, unless he passes away before you do or is unable to be located, in which case your daughter will receive the entire amount. Both of them would split the assets in accordance with the percentages you have chosen if you designate them as primary beneficiaries.
Alternatively, you could designate your children as contingent beneficiaries and your spouse as the primary beneficiary, meaning that your children would only receive an inheritance in the event that your spouse passes away before you. You would designate all of your children and spouse as primary beneficiaries if you wanted them to inherit the assets, maybe giving your spouse half and your two children each a quarter. In this scenario, your children would continue to be equally primary beneficiaries if your spouse passed away before you.
There are a few exceptions to the general rule that anyone can be designated as the primary or contingent beneficiary of your retirement account, life insurance policy, or living trust. The assets would first go to a legal guardian if the designated beneficiary is under the age of majority, depending on your state. Retirement accounts and life insurance policies are intended to prevent situations where naming a minor as a beneficiary could take the matter to probate court.
Please take note that your pet cannot be named a beneficiary, despite how much you may love them. If you’re worried about how your pet will be cared for after you pass away, you can leave a specific amount of money to a trust that will be set up for your pet’s afterlife in your last will and testament or living trust. You can designate a trustee for your “pet trust” in your final will and testament, and that person will be in charge of allocating the funds for your pet’s benefit during their lifetime.
However, your beneficiary does not need to be a person. Another option is to designate your preferred nonprofit or charity as a primary or contingent beneficiary; however, there are additional tax implications to take into account.
The unthinkable—that a tragedy might impact every beneficiary you have selected—is an additional possibility to consider when making beneficiary designations. By designating a remote contingent beneficiary—a body or individual who would receive your assets in the event that none of your other designated beneficiaries survive you—you can protect yourself from this.
Difference Between Primary Beneficiary and Contingent
FAQ
What happens if you have multiple primary beneficiaries?
What is the percentage of 3 beneficiaries?
How many primary beneficiaries are there?
What is the primary beneficiary rule?
Can a primary beneficiary be a secondary beneficiary?
You can list a primary beneficiary who will receive 100% of the proceeds and then name a secondary (or contingent) beneficiary to receive 100% of the proceeds in case your primary can’t accept benefits for any reason. You can elect to have multiple beneficiaries split the proceeds.
Who is my primary beneficiary?
Your primary beneficiary is your original choice for who will receive your assets. In some situations, that beneficiary may not be able to accept what you left for them. To ensure those assets still go to a person of your choosing, we suggest naming contingent beneficiaries.
Can a primary beneficiary be a contingent beneficiary?
You can name one or multiple primary beneficiaries to receive assets from your estate. Many people designate a spouse, partner, or their children as primary beneficiaries. If a primary beneficiary cannot legally receive an asset, including if they’ve predeceased you, a contingent beneficiary you named will get the asset.
Can a person name more than one primary beneficiary?
An individual can name multiple primary beneficiaries and stipulate how distributions would be allocated. A primary beneficiary is a person or entity named to receive the benefit of a will, trust, insurance policy, or investment account. More than one primary beneficiary can be named, with the grantor able to direct particular percentages to each.