Legal Definitions - contingency beneficiary

A contingency beneficiary is an individual or entity designated to receive assets or benefits if the primary beneficiary is unable to do so. Their right to receive the benefit is dependent on a specific future event or condition occurring, such as the primary beneficiary dying before the person providing the benefit, declining the benefit, or being otherwise disqualified.

Here are some examples illustrating how a contingency beneficiary works:

• Life Insurance Policy: Sarah purchases a life insurance policy and names her husband, Mark, as the primary beneficiary. She also names her two children, Emily and David, as contingency beneficiaries, specifying that they would split the proceeds equally. If Mark were to pass away before Sarah, or at the same time as Sarah, then Emily and David would receive the life insurance payout. This illustrates that the children's right to the benefit is contingent upon Mark being unable to receive it.

• Last Will and Testament: John drafts his will, stating that his entire estate should go to his sister, Lisa. To ensure his wishes are carried out even if Lisa cannot inherit, he includes a clause that if Lisa predeceases him, his estate should instead go to his favorite charity, "Helping Hands Foundation." In this scenario, Lisa is the primary beneficiary, and the "Helping Hands Foundation" is the contingency beneficiary, receiving the estate only if Lisa is no longer alive to inherit.

• Retirement Account (IRA): Maria has an Individual Retirement Account (IRA) and designates her niece, Sophia, as the primary beneficiary. She also names her nephew, Alex, as the contingency beneficiary. If Sophia were to pass away before Maria, or if Sophia were to disclaim (refuse) the inheritance, then Alex would become the recipient of the IRA funds. Alex's entitlement is contingent upon Sophia not being able to receive the benefit.