When you're opening new accounts or doing estate planning, an essential consideration is who will be listed as your beneficiaries. Primary beneficiaries, usually spouses and partners, are the first ones to inherit your assets when you die; contingent beneficiaries are the second ones in line to receive your assets.
What is a primary beneficiary?
Simply put, a primary beneficiary is the first one to inherit your assets after you die. Often, individuals will identify a spouse or partner as the primary beneficiary, but this is not a requirement.
If you're single, you can name children as primary beneficiaries, or you can list close friends or other family members. In general, the main consideration for a primary beneficiary is identifying who most depends on you for financial security.
The person you designate as your primary beneficiary is first in line to receive your inherited IRA or inherited 401(k), regardless of what the instructions in your will say.
When weighing whether children should be listed as primary beneficiaries, though, you'll want to take their ages into account. If they're minors, it may be better to name them as beneficiaries in a will or trust.
Another consideration is whether you're identifying more than one primary beneficiary. If so, you may have to determine the percentage of your assets that each individual will receive.
What is a contingent beneficiary?
Contingent beneficiaries, also known as secondary beneficiaries, are individuals who inherit assets if the primary beneficiaries are unable to receive them. Often, this happens if the primary beneficiary has died or can't be located. Some beneficiaries may also decline to inherit the assets in question, a process called disclaiming.
Frequently, if a spouse is named as a primary beneficiary, children, other family members, or even a philanthropic organization can still be named as contingent beneficiaries.
Primary vs. contingent beneficiaries
There are some major similarities and differences between the two different types of beneficiaries as outlined below.
Primary beneficiaries | Contingent beneficiaries | |
|---|---|---|
Who can be named | Spouses, children, other family members, friends, philanthropic organizations. | Spouses, children, other family members, friends, philanthropic organizations. |
Properties that can be inherited | Can receive a variety of assets including an inherited 401(k), an inherited IRA, life insurance. | Can receive a variety of assets including an inherited 401(k), an inherited IRA, life insurance. |
Rights as inheritors | Are the first ones to receive assets upon their distribution from an estate. | Can only inherit assets if they can't be distributed to the primary beneficiaries. |
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The bottom line on beneficiaries
With retirement planning, there are a variety of considerations for ensuring your financial security later in life. But it's also important to consider what will happen to your assets following your death. You can't take it with you, so it's best to pay careful consideration to the primary and contingent beneficiaries, who will receive your assets when you pass away. To this end, it's wise to form a last will and testament, paying special mind to the primary and contingent beneficiaries.
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