When creating an estate plan, one of the most important decisions you will make is who will receive your assets when you pass away. Selecting your primary beneficiaries will likely be fairly simple and straightforward; however, it is equally essential to name contingency beneficiaries throughout your estate plan. A Los Angeles trust attorney at Schomer Estate & Wealth Advisors explains why it is important to name contingency beneficiaries in your estate plan.
What Is a Contingency Beneficiary?
A contingency beneficiary is an individual or entity designated to receive your assets if the primary beneficiary is unable or unwilling to do so. Why might you need a contingency beneficiary? There are several common situations that prompt the need for a contingency beneficiary, including when a primary beneficiary predeceases you, when a primary beneficiary disclaims an inheritance, or when a primary beneficiary is otherwise unable to inherit because of incapacity, bankruptcy, or other legal restrictions. In the absence of a named contingency beneficiary, the assets you intended to be passed down to the primary beneficiary could end up as part of the probate process, possibly as part of an intestate estate, causing a significant delay in distribution. Moreover, the assets could wind up being distributed to someone not of your choosing. By including contingency beneficiaries throughout your estate plan, you effectively create a “backup” plan for your estate plan, ensuring that your estate assets are distributed according to your wishes and without unnecessary delays or disputes.
Where Will I Find Contingency Beneficiaries in My Estate Plan?
There are several opportunities within the average estate plan to designate beneficiaries. Often, one of the advantages to naming a beneficiary is that the asset passes directly to the beneficiary upon your death without the need for the asset to go through probate. Common estate planning tools and documents where you should consider naming a contingency beneficiary include:
- Last Will and Testament. Your Last Will and Testament will likely serve as the foundation of your comprehensive estate plan. Most people think name both primary and contingency beneficiaries in their Will. For example, if you name your spouse as the primary beneficiary of your estate, you may name your children or a charitable organization as contingency beneficiaries in case your spouse predeceases you. If you do not name contingency beneficiaries in your Will and your primary beneficiary cannot or will not accept the inheritance, your assets will be distributed according to the California intestate succession laws.
- Trusts. If you have created a trust as part of your estate plan, you should name contingency beneficiaries within the trust agreement just like you did in your Will. Parents, for instance, may name a child as a primary beneficiary and name a grandchild as the contingency beneficiary in case the child predeceases the parent. One of the primary advantages of using a trust to distribute estate assets is that the assets bypass probate. Trust assets could wind up going through probate anyway, however, if you fail to name contingency beneficiaries.
- Retirement Accounts and Life Insurance Policies. Retirement accounts (such as IRAs and 401(k) plans) and life insurance policies require you to name a beneficiary when the account is opened, or the policy is purchased. You will typically be asked to list one or more contingency beneficiaries as well. Once again, these are assets that can be passed directly to the named beneficiary upon your death; however, if you fail to name a contingency beneficiary and the primary beneficiary predeceases you, the assets may be held up in probate and end up being distributed using the California intestate succession laws.
- Payable-on-Death (POD) and Transfer-on-Death (TOD) Accounts. Payable-on-death (POD) and transfer-on-death (TOD) accounts allow you to name beneficiaries who will receive the account assets directly upon your death. Bank accounts, investments, and even vehicles may allow you to use a POD or TOD designation. Unlike jointly owned property, a POD/TOD beneficiary has no ownership interest in the asset while you are alive; however, the assets are directly transferred to the beneficiary you’re your death without the need to go through probate. Like other estate planning tools, these accounts should have both primary and contingency beneficiaries to ensure that they do not get held up in probate and distributed in a way that does not align with your wishes.
Do You Need Assistance Choosing Your Contingency Beneficiaries?
For more information, please join us for an upcoming FREE seminar. If you need assistance picking contingency beneficiaries for your estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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