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Contingent Beneficiary Explained: Everything You Need To Know

5 minute read

David Ning

By David Ning

One of the things I really appreciate my parents made was their will. When my dad passed away, his will made it clear that the surviving spouse was the primary beneficiary of the entire estate. My sister and I were only contingent beneficiaries, in the event that the surviving spouse was mentally unfit to handle their own finances.

The clear cut and straightforward instructions made handling the estate a non-issue. It really helped as our family dealt with the difficult emotions that accompanies the loss of a loved one.

Can you imagine some complicated will that splits different assets unevenly? Or having to go to different institutions to change ownership or transfer assets, all while having to deal with possible arguments of what is fair? Instead, the hardest part of handling my dad’s finances was figuring out what a contingent beneficiary actually meant.

What is a Contingent Beneficiary?

Basically, a contingent beneficiary can be thought of as a “just in case” beneficiary. Normally, a primary beneficiary is named for estates, retirement accounts, or insurance contracts. It’s most often your spouse/partner or your children. However, in the event that a primary beneficiary cannot receive the assets in question, then the contingent beneficiary is next in line.

Naming these beneficiaries is important. If there are no primary beneficiaries that can take the assets (and no contingent beneficiaries are named), then the courts might end up deciding who will receive the funds. In other words, the asset in question will be tied up while lawyers and governments figure it out. That will slowly drain the asset itself, to pay for the cost of figuring everything out. Furthermore, the person eventually awarded the asset may not be who you wanted to get it. After all, the rule of law doesn’t really care whether you like cousin Alice more than Alex, or that Aunt May needs the money more than Aunt Josie does.

How They Work

Contingent beneficiaries have a default clause for when they become eligible. In order for a contingent beneficiary to be used, the primary beneficiary has to refuse or be unable to inherit the asset. Other conditions can also be added before the contingent beneficiary can become eligible, though. The most obvious example to explain this would be a husband and wife who pass away together in a auto accident. Their assets would have likely passed to each other. However, since they died at the same time, their estate will look into their contingent beneficiaries instead. It could be children, siblings, or other friends and family.

My parents didn’t add this condition in their will. However, the protection would have been more solid if they did. My Dad simply put in the will that my sister and I are eligible for the assets if my mom was unfit to handle her finances. He also requested that we use the funds to take care of her financially, if necessary. Not that we would just take the money and run, or anything. But spelling out that we have to take care of her would give my mom more protection, just in case we were irresponsible kids.

Any Condition Can Be Added

You can sometimes add extra conditions to a contingent beneficiary. For example, your will can state they will only inherit the asset if they have a well-paying job. Or you can even say that beneficiaries are only eligible if they have kids of their own. In fact, basically any condition is allowed (within reason).

You can even come up with conditions that essentially allow you to have contingent beneficiaries for your contingent beneficiaries. That’s a mouthful, so let me explain with an example. Let’s say my parents wanted the surviving spouse to inherit all the assets first. But then they wanted to make sure the living is taken care of in the event that they are mentally unable to handle everything herself. Furthermore, they are more comfortable with my sister handling their care because she lives close by (I live half way across the world from them).

In their will, they could make my sister as the first contingent beneficiary, inheriting 75% of the assets. That leaves my sister with the resources needed to care for our mother, while I inherit the other 25% of the estate.

There’s another condition though. My sister must agree to take care of mom. If my sister refuses (or can’t) accept the terms, then the next contingent beneficiary kicks in. That would have me inherit 75% of the assets and take care of mom, while my sister inherits the 25%.

You Can Change Your Beneficiaries (in Most Cases)

Unless you have an irrevocable trust or insurance contract, you can normally change your beneficiaries quite easily. In the cases of IRAs and retirement accounts, you could even do it within minutes. We have a Roth IRA with Etrade Financial, for example. We can easily change our beneficiary online, much like we could change our address. Even in the case of a 401(k) or insurance policy, it would be relatively straight forward. Just contact HR or your insurance agent to make an update.

Remember to Keep the Information Up-to-Date

Life changes fast. Plenty of people forget to update their beneficiary instructions to reflect those changes. Divorces happen. Children grow up and get married. Relatives pass away. Maybe your kids are now of legal age and there’s no need for a guardian to be in the picture. Maybe you no longer need your child to finish college because they are pursing a technical trade instead. It’s also possible that you no longer wish to gift a certain charity a portion of your funds. Whatever the case may be, it makes sense to periodically go through your beneficiary list and make sure everything is still accurate.


It’s important to note that while most contingent beneficiaries are family members, you can name anybody as a beneficiary. In fact, you don’t even need to name people as contingent beneficiaries. You can give your assets out to a foundation, your local church, or any nonprofit organizations.

The only exception is that a minor cannot be named because they are legally unable to accept the assets. In this case, you must name a guardian or trustee who will manage the assets for the minor they hit the age of majority. That’s usually 18, but can vary slightly from place to place.

This is what we have done with our estate. Our kids are still young, so we named guardians that will handle the finances until our kids are of legal age. Assuming we live long and healthy lives, we will adjust our beneficiaries once the children are adults.

The Bottom Line

Contingency beneficiaries are pretty simple to add, remove, and changed. You really have no excuse not to keep the information up-to-date. Still, it’s easy to see that any conditions you add can become quite complicated. When you are coming up with them, make sure it’s easily enforceable and make sense for your situation. Try to put yourself in the shoes of your executor. Would you want to enforce your own rules, if the roles were reversed? Are the conditions likely to end up starting arguments or be contested in court? Strike a balance of your needs and wants versus ease of implementation. You owe it to the executor to do this.

Contingent Beneficiary PaperworkShutterstock
David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs, where he discusses every day money issues to encourage the masses to think about their finances more often.


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