IRA, Joint Accounts, and Contingent Beneficiaries In Minnesota

by Flanders Law Firm LLC on May 2, 2013

Minnesota Contingent Beneficiaries

Estate planning in Minnesota often touches on some pretty interesting subjects.  Death, inheritance, disputed estates and health care directives are pretty hot button issues. Other times, however, estate planning is a little on the dry side.  One example of a more mundane subject is the following article discussing contingent beneficiaries.

Though the subject may sound impossibly boring, that does not mean it is not important. What’s so important about contingent beneficiaries, you might be wondering?

By naming a contingent beneficiary on something like your IRA you can help cover yourself in the event that your primary beneficiary dies or is otherwise unable or unwilling to inherit the asset. This saves your heirs from having to liquidate the fund and fork over large amounts in taxes. Not a fascinating topic perhaps, but an important one nonetheless.

Most people who have an IRA know to designate a primary beneficiary, typically a spouse. What many people may not understand is that almost all IRA administrators also permit you to name a contingent beneficiary.

What is a contingent beneficiary and why should I care?

So what exactly is a contingent beneficiary? Well a contingent (also known as a secondary) beneficiary is someone who is entitled to your asset only if the primary beneficiary dies or disclaims the asset.

It’s almost always a good idea to go ahead and identify a contingent beneficiary given the possibility that the primary beneficiary could die before you. Doing so has almost no downside and helps you craft the most efficient estate plan possible. If you have someone in mind as a contingent beneficiary it is important to act quickly to designate that person because it must happen while you are still alive.

Why contingent beneficiaries in Minnesota are important

There are a few big reasons why it is so important to name a contingent beneficiary. First off, if you and your spouse die at the same time, perhaps in a car accident, and your children are named as contingent beneficiaries, then they will be able to inherit your IRA automatically.

This means that your children would be allowed to take a certain minimum annual distribution from the account over their lifetimes. Doing this allows the rest of the IRA to continue growing on a tax-deferred basis for years to come, dramatically increasing the overall value of the fund and, ultimately, of their inheritance.

However, if the children are not listed as contingent beneficiaries then they would not be allowed to seamlessly take control of the IRA. Though they would still inherit the asset as part of your estate, they would also be forced to liquidate the account and pay taxes on it, sharply reducing the value of the fund.

Another reason that listing contingent beneficiaries is a good idea is that it provides greater flexibility in your estate plan. For instance, even if your spouse does survive you, he or she may not need the money contained in the account. In that case, your spouse is permitted to disclaim his or her interest and pass the money along to the contingent beneficiaries without taking the tax hit.

As long as the primary beneficiary disclaims his or her interest in the IRA within nine months of your death then that person’s interest in the fund is permitted to pass to the named contingent beneficiaries.

An experienced Minnesota estate-planning lawyer can help walk you through the process of establishing and altering an estate plan, including naming contingent beneficiaries. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 360-4721.

Source: Picking IRA Beneficiaries,” by Bob Carlson, published at

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