Heirs and Contingent Beneficiaries

When the Titanic went down in 1912, several women chose to remain on board with their husbands. One was Ida Straus, whose family co-owned Macy’s Department Store. Although Titanic-scale disasters are extraordinarily rare, you should nevertheless include a contingency beneficiary in your will or trust in case life or death serves up something unexpected.

The Contingent’s Role

If primary beneficiaries are unable or unwilling to receive an asset left to them in a will or trust, the next-in-line contingent beneficiary steps in. Contingent beneficiaries serve a similar function when it comes to life insurance and bank, security, retirement, college savings and health savings accounts.

While family and friends are typical recipients, contingent beneficiaries can be people, organizations, estates, charities or trusts. However, note that minors and pets cannot assume the role, because they have no legal power to accept assigned assets. A child requires a guardian for the assets; pets would require a trustee to administer funds for their lifetimes.

Naming Contingents

You can avoid the time and expense of probate by specifying contingents. Rest assured that they have no rights over your assets while you are alive and may not even realize they are beneficiaries. Unless an account is irrevocable, you can freely change them. In fact, you should regularly review your estate plans, including your contingents, to confirm they are up to date with your life events — births, deaths, marriages, divorces, etc. For example, after a divorce, children who were formerly contingents may now become primaries. Or you may simply have a change of heart, which is entirely permissible.

Many testators also select a favorite charity or nonprofit as the ultimate contingent. Rather than four or five heirs down the pecking order, they prefer to designate a church,college or other charity over some distant family member.

Facing the Unexpected

Back to the Titanic. It is not unusual for spouses or family members to die in rapid succession, albeit rarely in ocean liner disasters. Tragically, airplane crashes and highway pileups do happen.

Adding to the turmoil, parties might have named each other as reciprocal primary beneficiaries. To preempt inheritance chaos, attorneys use Titanic clauses, particularly for high-net-worth clients, those with young children or those in second marriages. Also called an “Takers of Last Resort” clause, it kicks in if all your primary and contingent beneficiaries die at once. Here again, nonprofit institutions could outlast everyone.

Couples in second marriages may also own property with joint rights of survivorship, meaning a house might arbitrarily end up with the children of whichever parent is assumed to have died second and thereby cut out the step-siblings.

This explains why many wills mandate that a beneficiary survive the will writer for a certain time period, up to several months. The consequence is that the asset passes as if the original beneficiary had died first, and the legacy goes straight to the contingent. It may help preclude extra estate taxes or extra rounds of probate.

Consult a lawyer here at ESM.  We are experienced in estate planning and probate law and will help make sure you include contingent beneficiaries and keep them up to date.

Do you have questions?

Count on your experienced team at Ericson, Scalise & Mangan, PC to provide you with sound guidance for your Estate Planning, Elder Law, Real Estate, Probate, Trust & Estate Administration, and other legal needs. For assistance, contact us today at 860-854-3809, or email us at info@esmlaw.com.