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Why You Should Name a Contingent Beneficiary

Aug 14, 2020

Naming a contingent beneficiary is an important, yet often overlooked, part of the life planning process. Similar to a conveyor belt, time moves slow, but it never stops moving. Simply, you never know what life will bring. The only constant in life is time and change. Similar to life and time, your beneficiaries may change. 

If your primary beneficiary is no longer an option, having a contingent beneficiary(s) can help protect against unnecessary probate and ensure a streamlined and seamless payout to your loved ones. Additionally, a contingent beneficiary designation can help save your loved one from professional fees for that account. Life doesn’t always work the way we plan, that’s why we plan.

For example, Person “A” has an IRA with a major bank. Person A dies from old age. Unfortunately, Person A failed to update their primary beneficiary designation after Person A’s primary beneficiary died years earlier. Additionally, Person A never believed they would die after their primary beneficiary, and therefore, never cared to name a contingent beneficiary. As a result, Person A’s beneficiary designation on the IRA account is invalid and Person A’s account will become property of Person A’s estate. Now, the only way for any of Person A’s descendants to access the IRA account proceeds is through probate. 

The IRA may be added to Person A’s total gross estate, be subject to certain professional and attorney fees, and may be accessed by Person A’s creditors, as allowed by law. Moreover, the estate will need to name a personal representative/executor, receive Letters of Administration, and a court order to gain access to the IRA account. All of this could have been avoided if Person A had named a contingent beneficiary.

Alternatively, Person A has an IRA with a major bank. Person A dies from old age. Person A forgets to change their primary beneficiary designation, and primary beneficiary predeceases Person A. However, Person A remembers to designate a contingent beneficiary for their IRA account. In many instances, the contingent beneficiary need only produce identification and a death certificate to receive the IRA proceeds. In this example, a contingent beneficiary receives the IRA and the IRA is not required to pass through probate.

Much of life is knowing. Had someone known the burden on their family, they would have been more thorough. Trusting Co. creates tools to allow for greater peace of mind. Trusting Co. is here to teach you ways to better your life and protect your family’s future. Organize more, stress less. Trusting Co.

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