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Contingent Beneficiaries

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  • Avatar JK 
    Participant
    Status: Physician
    Posts: 138
    Joined: 01/09/2016
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    Currently a resident and trying to get my financial house in order. One of the major things this week is making sure beneficiaries and contingent beneficiaries are in place for all of my accounts. My spouse is the primary beneficiary (and vice versa) and the contingent beneficiary is currently her sister for my wife and my father for me (both are very trustworthy). However, I was just speaking to a friend and they said that the best option for contingent beneficiary is The Estate of “Me” instead of an actual person. My questions:

    -Is this even an option/acceptable for Vanguard, Ally, Fidelity, etc…

    -Is it the right thing to do, even if able?

    -How does this factor in or compare to what you have in your will? How is it reconciled?

    #108909 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7796
    Joined: 01/09/2016

    No, the contingent beneficiary should not be the estate. I’m not going into all of the reasons except to say it complicates the distribution of the retirement accounts. You should (almost) always name an individual.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #108910 Reply
    Liked by MPMD, Dr. Mom
    Dr. Mom Dr. Mom 
    Participant
    Status: Physician
    Posts: 574
    Joined: 02/27/2017

    Contingent beneficiary designation depends greatly on other estate planning.  As Johanna mentioned, estate should not be the default contingent beneficiary designation on retirement accounts.  Our contingent for retirement plans is fancy legal wording written for us by our estate planning attorney which names the trusts set up in our will.

    #108912 Reply
    Liked by q-school
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 1909
    Joined: 01/15/2017

    Retirement funds have spouse.  The taxable accounts all flow to trust.

    check with your lawyer on the setup of your trust

    #108922 Reply
    Avatar ransom 
    Participant
    Status: Physician
    Posts: 13
    Joined: 04/05/2018

    OP, you need to have an estate attorney advise.  This is one area where it pays to have good advice.

    #115395 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2281
    Joined: 05/01/2017

    You don’t really need an estate attorney when you have no assets.

    Just make primary spouse and secondary someone you trust. Soon you’ll need to think about a trust even when you have a large term policy but for now don’t worry about it.

    #115401 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1793
    Joined: 02/01/2016

    I don’t know where this idea of trust involving a contingent beneficiary is coming from. You want your executor and/or trustee to be trustworthy, but a contingent beneficiary is just that and trust is irrelevant.

    With all other things being equal you generally want the beneficiary of your retirement accounts to be your spouse and another natural person as a contingent beneficiary. Alternatively, you might want a trust properly constructed to be a beneficiary of a retirement account.

    You should never name your estate as any level beneficiary of a retirement account. If you do so you lose the ability for the retirement account to be distributed over someone’s lifetime. For the same general reason it is more advisable to name the younger of your potential beneficiaries as beneficiary of your retirement accounts. Their lifetimes are longer.

    If available it would be better for the OP to name their father as contingent beneficiary of taxable accounts, life insurance, real property, etc… and someone younger for the retirement accounts either directly or in trust.

    #115406 Reply

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