Understanding Contingent Beneficiaries in NY

Understanding Contingent Beneficiaries in New York

In estate planning, the term “beneficiary” is commonly used but often misunderstood. While most people have heard about primary beneficiaries, the concept of “contingent beneficiaries” remains a bit vague to many. Contingent beneficiaries play an integral role in ensuring that your assets are distributed according to your wishes after your death.

We believe that every client should understand the meaning and significance of the terms used in estate planning. This blog post explains New York laws relating to contingent beneficiaries, how they work, why they’re important, and what you need to know to make informed decisions. If you have questions about any aspect of your estate plan, contact our office for a full review of your circumstances and professional guidance planning for your family’s financial security.

What is a Contingent Beneficiary?

A contingent beneficiary is an individual, organization, or other entity designated to receive assets or benefits if the primary beneficiary is unable or unwilling to receive them. Essentially, they are the “backup” to the primary beneficiary. Contingent beneficiaries come into the picture when a specified event or condition occurs.

For example, a testator making a will or a grantor establishing a trust can include a contingent beneficiary if the primary beneficiary dies before the will is probated or the trust benefit occurs (vests). Another example might involve a bequest or benefit being granted to the primary beneficiary only if they graduate college by age 25. If that individual fails to accomplish the achievement on which the bequest is conditioned, then the asset will bypass the primary beneficiary, and be paid to the contingent beneficiary.

Contingent beneficiaries can be named in a will, a trust, a life insurance policy, a bank or brokerage account or in the distribution of remaining sums of money in a decedent’s IRA or 401k.

The Importance of Naming Contingent Beneficiaries

Understanding Contingent Beneficiaries in New York
Understanding the role of contingent beneficiaries and the laws that govern them in New York is an essential aspect of prudent estate planning. Failing to appropriately designate contingent beneficiaries can result in unintended and undesirable distribution of your assets.

Anyone who is making a will should include contingent beneficiaries to cover the “what if?” scenarios, even if it seems unlikely that some event would prevent the primary beneficiary from being willing and able to receive the bequest. Few people assume that their children will predecease them, but tragedies can occur with cruel randomness.

Prevents Intestate Succession

In New York, if no contingent beneficiary is named to receive an inheritance if a primary beneficiary is deceased, the Surrogate’s Court will apply the laws of intestate succession as set out in the Estates Powers and Trust Law (EPTL) § 4-1.1. This could lead to a family member receiving some or all of the testator’s estate assets when that was not the testator’s intent or desire.

Streamlines the Distribution Process

Including a named contingent beneficiary can also prevent unnecessary delays and disputes among family members about who should receive a share of the estate or trust. The best practice when making a will or trust is to be as clear and detailed as necessary to make your wishes known to the court and to your heirs. Ambiguity invites uncertainty, and in the context of probate estates, any uncertainty usually creates conflict and resentment among the interested survivors.

Increased Flexibility and Control

Contingent beneficiaries provide an additional layer of control, enabling the testator to dictate specific conditions that a primary beneficiary must meet to receive the designated assets. There may also be successive contingent beneficiaries who would receive the bequest if neither the primary nor the first contingent beneficiary(ies) were able or willing to receive the asset under the terms set out in the will or trust.

New York Law Requirements to Name a Contingent Beneficiary

New York law requires that certain procedures are followed to successfully name a valid contingent beneficiary:

  • The owner of the asset must express their intention to name a contingent beneficiary in writing.
  • The contingent beneficiary must be clearly identified by name and by stating their relationship to the owner in order to avoid confusion between similarly named individuals.
  • A will and certain other documents must be witnessed and/or notarized, as required for the particular instrument.
  • Any conditions on which the gift is contingent must be clearly and specifically stated. The conditions must also be legally permissible.

Tips to Keep In Mind

While the use of contingent beneficiaries provides a testator or grantor additional control over the distribution of their assets, vigilance is required to ensure that the document reflects the current life circumstances of those involved.

Outdated information or a change in the nature of a relationship may require that the document be amended to reflect current circumstances. The best practice is to periodically review the terms of your testamentary instruments with an experienced estate planning attorney to ensure the documents comply with any changes in the law.

This is also an opportunity for your estate planning lawyer to take advantage of any new tax saving strategies that may have developed.

Consult with an Experienced Estate Planning Attorney

Understanding the role of contingent beneficiaries and the laws that govern them in New York is an essential aspect of prudent estate planning. Failing to appropriately designate contingent beneficiaries can result in unintended and undesirable distribution of your assets. While this article aims to offer general guidance, each individual’s circumstances are unique. Therefore, consulting with a qualified attorney who specializes in estate planning is highly recommended to ensure that your wishes are executed in full compliance with New York law.

When making a will or drafting any type of document relating to your estate plan, it is essential to work with a knowledgeable and experienced estate planning law firm that you can trust. For a generation, Ely J. Rosenzveig & Associates has been helping individuals and families secure their financial future.

Estate planning can involve complex strategies and distinct instruments that must be selected and prepared in full compliance with legal requirements. Irregularities or errors can cost your survivors dearly. If you need information or guidance choosing the right estate planning instruments for your circumstances, contact Ely J. Rosenzveig & Associates.

Call Ely J. Rosenzveig & Associates
Call 1.914.816.2900 or email us at: [email protected]

Ely J Rosenzveig
Ely Rosenzveig

Ely J. Rosenzveig practices principally in the fields of elder law, trusts & estates, tax planning, employment law, and mediation. He has extensive experience in federal and New York State tax law, and has successfully represented a wide range of clients on FBAR & FATCA compliance issues. Ely also practices employment law, with a particular emphasis on age and disability discrimination, negotiating compensation agreements, and severance issues. With his extensive background in the law, his experience as a congregational rabbi, and his specialized training in Mediation at Harvard Law School, Ely is also available as a professional mediator to help facilitate optimal solutions in matters ranging from family and estate disputes to multi-party commercial issues.

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