What Is a Contingent Beneficiary in Alberta?

When people make wills in Alberta, part of the process is to name beneficiaries, i.e., those who will inherit their assets after they die.

But did you know that there are different types of beneficiaries?

“Contingent beneficiaries” may not be a commonly used term in estate planning but it does crop up in many wills and life insurance policies, in addition to “primary” beneficiaries. This can create confusion among family members even though the will-maker only intends to ensure that a particular asset ends up in the right place.

So, what exactly is a contingent beneficiary and under what circumstances can he or she inherit the deceased’s assets?

A beneficiary is an individual or legal entity you name in a will, trust or financial policy (such as a life insurance policy) to receive your assets once you pass away.

Some registered savings or investment accounts, like TFSAs or RRSPs may also request beneficiary designations to be made (see more information below).

Almost any legal entity can be named as a contingent beneficiary. This includes:

• A spouse
• A child
• Another family member
• A friend
• An estate
• A trust
• A charity
• An organization
• A pet

Minors may not be legally entitled to receive an asset until reaching a certain age, in which case a trustee may be appointed to manage the property until that date.

Choosing any beneficiary is a personal decision and, generally speaking, Alberta law respects the right of any person to leave any asset to any other person after they die.

You can designate primary and contingent beneficiaries for a specific gift, the whole estate, or the residue of the estate.

Such decisions must be made carefully and with full knowledge of their implications. As long as you have the mental capacity to make the decision and you create the right legally valid document, you can choose almost anyone to inherit assets as a primary or contingent beneficiary, as explained above.

The golden rule is to clearly identify the beneficiary and be specific. For example, for organizations, you should include a business identification number. If assets are to be shared, specify the percentages.

If you intend to leave assets to a minor, it’s best to specify when they should receive it (usually at the age of majority, which is 18 in Alberta) and who will manage it as a trustee until then.

When naming beneficiaries in a will, it’s best to work with an estate planning lawyer, who can ensure that your decisions are legally enforceable.

You should also plan to review your primary and contingent beneficiaries from time to time (every two to three years at least) to ensure that they still reflect your true wishes.

Designating beneficiaries ensures that a will-maker gets to decide where his or her assets end up after death. This is a great comfort to most people, who can ensure that loved ones are looked after even when they’re not around.

Primary beneficiaries are like “first choices” for assets. By naming a contingent beneficiary for each asset, you can reduce the potential for disputes and lengthy court processes if the primary beneficiary cannot receive the asset as intended.

Life insurance policies generally bypass the probate process if beneficiaries are named. This means that beneficiaries inherit the entire value of the asset regardless of any debts or taxes owed by the estate.

However, if primary beneficiaries pass away before the policyholder, the assets will go to the estate and probate may be required unless contingent beneficiaries are named. This can lead to extra costs, delays, and potential disputes among family members. Sometimes, the assets may even be required to help pay creditors or debts of the estate.

That’s why it’s a good idea to name a contingent beneficiary on a life insurance policy — and the same general guidelines apply for registered accounts, such as TFSAs or RRSPs.

It’s much easier to change beneficiaries in life insurance policies and investment accounts than in a will so you should have no reservations about naming primary and contingent beneficiaries as soon as possible for these assets.

Read More → Can the executor probate a will without a lawyer in Alberta

If no contingent beneficiary is named in the will and the primary beneficiary dies or is otherwise unable to accept the gift, the asset will become part of the residue of the estate.

You may name a beneficiary for the residue of the estate but if not, the statutory rules of intestate succession in Alberta will govern the distribution of the remaining assets. Ultimately, both scenarios could mean that the asset ends up with an unintended beneficiary.

Learn More → The Importance of Will & Estate Planning

If you need help with writing a legally valid will that avoids these types of issues, get legal assistance during an initial consultation with an experienced lawyer at Vest Estate Lawyers in Edmonton.