You need more than a primary beneficiary on your financial accounts... just in case. Contingency beneficiaries can be your Plan B and even Plan C.

What is a contingent beneficiary? If that question has been keeping you up at night, know that you'll soon be getting a sound night's sleep. By the end of this article, you'll be an expert on contingent beneficiaries.

Let's back up a bit, though, and review what a beneficiary is. When establishing retirement, bank, and brokerage accounts, as well as insurance policies, among other things, you're typically asked to name a beneficiary who will inherit the assets therein upon your death. Without a beneficiary, they will become part of your estate and may languish in probate before being distributed according to your will and state probate laws.

With bank accounts and CDs, you can generally designate beneficiaries using a payable-on-death designation. With brokerage accounts and mutual funds, transfer-on-death forms are typically used.

Beyond primary beneficiaries, however, you should also name one or more secondary ones. They aren't secondary because they get smaller shares, but rather because they stand in line after the primary beneficiary. This is why they're known as contingent beneficiaries.

For example, if you list your spouse as your primary beneficiary on your brokerage account -- or any other asset, for that matter -- then you might list your children as contingent beneficiaries. Under this arrangement, if you die, then your spouse will inherit the account in question. But if your spouse predeceases you, then your children would step into his or her place.

For your primary and contingent beneficiaries, you're generally allowed to designate multiple parties. If you want to have multiple primary beneficiaries and/or multiple contingent beneficiaries, you must specify the percentage of the account that is to go to each party. The percentages must add up to 100% for the primary beneficiary and also to 100% for the contingent beneficiary. 

Note, too, that beneficiaries don't have to be people. They can be organizations, charities, and even trusts. You can, for example, divide your estate among several people and several charities, if you want to.

Photo: asenat29, Wikimedia Commons.

Finally, once you've designated your primary and contingent beneficiaries, don't think you can just forget about the whole topic. That can lead to problems, such as having your primary beneficiary be someone you divorced 10 years ago and don't even like any more, or having one or more beneficiaries die before you. This is why it's smart to review your beneficiary designations regularly -- at the very least, you should do so whenever you experience a major life event, such as a marriage, divorce, birth, or death. You might want to add children or a spouse, for example, or change the proportions you set up.

Think of the contingent beneficiary as sort of a Plan B -- and an important one.