Perhaps the most important choice you can make when it comes to protecting your wealth and guaranteeing its distribution in accordance with your wishes is who you select as beneficiaries. This poses some important questions, like:
- Who should be listed?
- What happens if someone is unavailable to claim what’s been left to them?
- How do you ensure your plans remain intact regardless of the unexpected?
Dominion has spent decades coming up with the right answers to these questions and more. It all starts with understanding the differences between primary and contingent beneficiaries and why they are necessary when it comes to wealth planning.
Defining the Beneficiaries: Primary vs. Contingent
The first person who is lined up to receive the benefits of your life insurance policy, trust, or estate is called a primary beneficiary. If you have more than one, you can specify what percentage of your assets should go to each.
But what happens if all your primary beneficiaries predecease you or can’t be located? If you leave no plan in place, your wealth might get tied up in probate for years and at a substantial cost.
It’s here that the contingent beneficiary enters the picture. Also known as a secondary beneficiary, it is a backup beneficiary to make sure that in the event your primary beneficiaries can’t receive your assets they go to somebody else you choose.
Naming contingent beneficiaries ensures your estate remains protected from the costs of unnecessary taxation, delays, and the predatory reach of creditors.
Why You Need a Contingent Beneficiary
Not naming a contingent beneficiary can result in your assets reverting to your estate in the event none of your named beneficiaries are living. When this happens, your estate may be liable for estate taxes, probate court, and the potential claims of creditors.
Worse yet, it could take your loved ones months or years to find out what happens next. All of these risks can be mitigated if you just name a contingent beneficiary.
This is handled with clarity at Dominion. Whereas others may suggest a name and move on, we do this with precision. We look at each jurisdiction where the assets are held, where the beneficiaries are located, and where one resides. Because when it’s time to protect your wealth, every detail counts.
Who Should You Name?
Primary and contingent beneficiaries are entirely your choice, based on your priorities and circumstances. Often, primary beneficiaries are wives, children, or other close relatives. Contingent beneficiaries, on the other hand, give you more choices, such as:
- Extended Family: Siblings, nieces, nephews, or more distant relatives.
- Charitable Organizations: Leave a legacy by supporting causes meaningful to you.
- Trusts or Entities: Provide structured oversight for managing and distributing assets.
It’s commonplace for high-net-worth individuals to name multiple primary and contingent beneficiaries with exact percentages. Dominion helps you to design custom-made beneficiary structures that reflect your wishes as well as your wealth strategy.
Key Considerations for Beneficiary Designations
You can protect your legacy and lower your risks by being responsible and well-informed. Remember these things:
Update Regularly
Life changes often, so should your estate plan. Updates might be required because of marriage, divorce, births, deaths, or even changes in tax laws. Inadequate review produce outdated designations that could leave assets in the wrong hands.
Think Beyond the Obvious
Naming your spouse or children might sound straightforward, but think bigger. For example, if you name your minor children directly, probate court may have to appoint someone else to administer your children’s inheritance. If you have a trust, though, you can pick and choose exactly how and when your assets are dispersed.
Understand Tax Implications
Tax consequences can result when you change your beneficiary designations. Naming a charity as a contingent beneficiary may have tax advantages but must be carefully structured, for instance. Dominion makes certain that every designation will fit into your overall tax strategy while ensuring exposure is minimized, and benefits are maximized.
Be Specific
Ambiguity breeds disputes. For example, simply notating “my children” on a beneficiary line can create legal battles over the definition of what those children constitute. At Dominion, the precision is emphasized right down to the percentage and the terms of distribution.
The Role of Jurisdiction
In terms of international wealth management, jurisdiction is everything. Some countries do not recognize trusts or specific beneficiary designations and may place restrictions that could void your entire plan. For example:
- Some jurisdictions do not acknowledge trusts from outside their borders.
- Others have laws that limit the inheritance rights of non-citizens.
The protection of your assets is guaranteed with Dominion, as we have the expertise to cover wherever an asset is held. With our international network of attorneys and advisors, we tailor solutions that operate in harmony with each other across different legal systems to protect your wealth against vulnerability.
Potential Pitfalls Without Contingent Beneficiaries
Oftentimes, a failure to designate contingencies exposes your wealth to potential legal, financial, and logistical challenges that could derail your intentions. Here are some real-world scenarios to consider:
Probate Delays
If you don’t name a contingent beneficiary, then your assets go to your estate and probate (a time-consuming legal process). In addition to slowing down the distribution of the estate, probate opens up the possibility that assets will be contested, legal fees will be stacked up, and an unnecessary administrative load will have to be handled.
The probate procedure may become a protracted nightmare for high-net-worth people, particularly in cases when assets are held in multiple jurisdictions.
Increased Tax Liability
Estate taxes on the assets distributed through an estate can seriously erode the value of what remains for your heirs. Additionally, the estate itself may face taxation on income generated during probate, further diminishing its overall value.
By naming a contingent beneficiary, you streamline the transfer process and potentially shield your wealth from excessive taxation.
Vulnerability to Creditors
An estate without named beneficiaries is an easy target for creditors. Your assets may be depleted with outstanding debts, lawsuits, or opportunistic claims, leaving nothing for your loved ones.
While most people are content setting up a basic beneficiary designation, Dominion takes it one step further and designs legal structures that will keep your wealth out of view of creditors while ensuring it will go to those you’ve chosen without issue.
Complications for Minor Beneficiaries
If your beneficiaries are minors, and contingencies for spending the inheritance aren’t established, the court may assign a guardian to manage their inheritance. Also, this brings yet another layer of delays, bureaucracy, and potential mismanagement.
Declaring a trust as a contingent beneficiary provides controlled access and guarantees that minors get their inheritance in line with your wishes.
If you don’t name contingent beneficiaries, your estate is open to uncertainty and risk. Dominion’s meticulous approach can ensure your assets are never left vulnerable, all the while maintaining airtight protection with clarity for the seamless transfer of wealth.
Crafting a Beneficiary Strategy
At Dominion, we believe that wealth planning isn’t a subject you can cover with a single prescription. Beneficiary designations need to be specific to each client, as their financial landscape is unique to them.
Crafting a suitable strategy for real estate investment is a complicated affair that calls for a careful evaluation of the assets at your disposal, the most appropriate jurisdiction, and the ultimate risks associated with the resources invested. Here’s how Dominion approaches this critical task:
Analyzing Your Assets
All of your wealth, from tangible assets like real estate and collectibles to intangible assets such as investments or intellectual property, will require careful thought.
When passing assets to beneficiaries, there are logistical, legal, and tax implications for each type of asset. We take these into account globally and come up with a designation structure according to your wishes – one that will produce as much financial benefit as possible for your heirs.
Jurisdictional Mapping
In many cases, the economy that is creating this wealth crosses multiple jurisdictions that have competing regulations. For example, some jurisdictions do not recognize trusts and beneficiary structures, and in other jurisdictions, restrictions may be effective in thwarting your plans.
Thanks to Dominion’s wide global network of legal experts, each designation is in accordance with the governing laws of relevant jurisdictions and made in light of the laws of the particular jurisdictions.
Whether your assets are spread across foreign boundaries or your beneficiaries live overseas, we guarantee flawless compliance and enforceability.
Contingency Planning
The unpredictability of life means that even the best-laid plans may be compromised by inadequate contingency planning. At Dominion, we consider the unexpected as well as the expected. The seamless passing of wealth might be disrupted by simultaneous deaths, heir conflicts, or unanticipated legal hurdles.
By employing our approach you are safeguarding your strategy and insuring your wealth will be protected and distributed the way you want regardless of the circumstances.
Review and Adaptation
Moreover, Dominion’s continuous new review process guarantees your strategy is always refined to match current conditions in compliance with the most current trends. We take a proactive approach, safeguarding your wealth for generations to come and ahead of regulatory change.
Take Control of Your Wealth
Whether you are naming your first contingent beneficiary or reviewing an old estate plan, Dominion advisors are standing by to walk you through each of these steps. For your free consultation, call us today. Find out why we’re the industry’s most trusted wealth governance professionals.
