What Is a Secondary Beneficiary?

A secondary beneficiary is a person or entity that is eligible to inherit assets from a grantor after the rights of the primary beneficiary have been considered and satisfied. This type of beneficiary is also referred to as a contingent beneficiary.

A secondary beneficiary is only eligible to inherit property under specific circumstances. These scenarios include the primary beneficiary passing away, the primary beneficiary deciding not to accept their inheritance, or the primary beneficiary being instructed by a will or estate to provide for the secondary beneficiary.

The assets may be transferred to the secondary beneficiary in the event that the primary beneficiary cannot be located at the time of the grantor's death. The necessary steps and amount of time needed to identify the primary beneficiary of an account, such as a will, trust, or another type of account, such as an insurance policy or an annuity, can vary according to the legal document that governs the assets in question.

• A secondary beneficiary, also known as a contingent beneficiary or backup beneficiary, is a person or entity that is designated to inherit assets in the event that the primary beneficiary passes away before the grantor.

• A secondary beneficiary can be named in a will, trust, retirement or investment account, and any other accounts in which assets can be inherited. This allows the secondary beneficiary to inherit the assets in the event that the primary beneficiary declines their inheritance or becomes incapacitated.

Understanding About Secondary Beneficiaries

If the primary beneficiary is unable to inherit the assets, the parties involved can name secondary beneficiaries for their retirement accounts or other investment and retirement vehicles to circumvent the need for the court to administer the estate. An insurance policy, an annuity, a 401(k) plan, a 529 college savings plan, a health savings account (HSA), or a trust all allow the account holder to specify who or what, such as a trust or charity, will be the beneficiary of the assets upon the account holder's passing.

If the account holder becomes incapacitated for any reason, the assets may be distributed among the named parties. In situations like these, it is frequently possible to designate more than one primary or secondary beneficiary, and to divide the total benefit up proportionally among those who are chosen. Many policies forbid allocating amounts because the values of the account can shift over the course of its lifetime, which can lead to complications when the account holder dies.

The process of designating beneficiaries can sometimes be quite complex. Some accounts allow for per-stirpes designations, which means that if the beneficiary of the account passes away before the account holder, the beneficiary's heirs will receive the assets that were allotted to them.

The Functioning of a Will

A will is a declaration that can be used to enforce a person's wishes regarding the distribution of their property and possessions after their death. Although the structure can vary, most wills adhere to a relatively consistent layout, beginning with a declaration that the testator is of legal age and making the will of their own free and informed will. The testator must be at least 18 years old or married to be able to make a will.

The document identifies a guardian for any children who are under the age of 18, the beneficiary or beneficiaries, and an executor, who is responsible for carrying out the will. It is possible to itemize bank accounts and divide property among several individuals using a will. Jointly owned assets are also divided in accordance with the terms of the will. A document that has been carefully written can help to avoid legal challenges and the costs that are associated with them.

The majority of states demand the presence of witnesses during the process of executing a will. A valid will in the state of Iowa needs to have at least two witnesses who are at least 16 years old and competent. These individuals are required to sign the will in front of not only the testator but also each other and in the testator's presence. In addition, the testator is required to affirm verbally in front of the witnesses that the document in question is in fact his or her will.

Self-proving wills are possible in certain circumstances. This is something that can take place if, at the time the will was drafted, the testator as well as witnesses sign affidavits that detail how the will was carried out. In every circumstance, it is strongly suggested to seek the assistance of a legal professional in order to ensure that the will is legal and that its instructions are carried out in the desired manner.

What is a "Grantor"?

A person or other entity that establishes a trust is referred to as the grantor, regardless of whether or not that same grantor also acts in the capacity of trustee. There are a few different names that can be used to refer to the grantor, including settlor, trust maker, and trustor.

What is Estate Planning?

Estate planning assists individuals in making preparations for the management of their assets after their deaths. People plan their estates for a variety of reasons, including preserving the wealth of their families, providing for their surviving spouses and children, funding their education or the education of their children or grandchildren, or leaving their legacy to a charitable organization or foundation.

When Are Beneficiaries Notified?

Wills are typically submitted to the court that oversees probate in order to be validated. After a will is validated through the probate process, the beneficiaries of the will are required to be notified, and wills that have been validated are automatically added to the public record.

The Bottom Line

A secondary beneficiary is a person or entity that may inherit assets from a grantor after the rights of the primary beneficiary have been considered. This type of beneficiary is also sometimes referred to as a contingent beneficiary. When the primary beneficiary passes away, if the primary beneficiary chooses not to accept their inheritance, or if the primary beneficiary is given instructions to provide for the secondary beneficiary, the secondary beneficiary is the only person who can inherit the assets.