In end-of-life planning, the person will usually choose who gets what from their assets and property via a trust, insurance policy, or other estate planning tool. The person or persons on the receiving end are called beneficiaries as they benefit from the instrument. 

What are the Different Types of Beneficiaries That Exist?

A beneficiary can be anyone, unlike an heir. A beneficiary is someone who can take an interest in or has the power to control property. (Prob. Code § 267.) These types of beneficiaries are usually primary beneficiaries. Because a beneficiary can have a present or future interest, they may be entitled to enforce a trust giving them a present interest and a future interest once the person dies. 

Contingent beneficiaries require a condition to occur in order for their interest to vest. For example, with a life insurance policy that condition is the death of the policy holder. In a trust, where beneficiaries are a class of persons, they may hold a future interest. 

This means their interest vests when one or more members come into existence and can be determined, like children or grandchildren being born. (Estate of Woodworth (1993) 18 Cal.App.4th 936, 942.) These are contingent beneficiaries who must come into existence for their interest to vest. There are some differences however in how contingent beneficiaries interact with these different instruments.

What does Appointing a Contingent Beneficiary Mean for a Trust?

Appointing contingent beneficiaries allows you to grant interests to children or grandchildren even if they have not all been born yet. Having a designated class of beneficiaries like this also prevents a trust from being terminated. For a trust the interest of a beneficiary is either vested, so the condition has occurred, or it is contingent. 

So, if a trust granted assets to all children of the family and all children had been born that interest would be vested in each of the children as beneficiaries. (Civ. Proc. Code § 699.720, subd. (a)(9).) If some children had not been born yet their interest would be contingent on them being born. It would only vest upon their birth and when all possible children were born. So where possible unborn children are not before the court a trust cannot be terminated.  (Gray v. Union Trust Co. of San Francisco (1915) 171 Cal. 637, 641; Bixby v. Hotchkis (1943) 58 Cal.App.2d 445, 451.)

What does Appointing a Contingent Beneficiary Mean in a Will?

In a will, there must be a precise contingency to grant an interest in an estate to the contingent beneficiary. For example, if a will provides an interest contingent on the beneficiary not surviving the testator by 180 days and she did, the interest will not vest, and she would not get an interest in the estate. (Estate of Murphy (1979) 92 Cal.App.3d 413, 426–427.)

Where it is somewhat unclear what the will intends, extrinsic evidence may be considered. (Estate of Russell (1968) 69 Cal.2d 200, 207.) So, the will and external evidence may be interpreted to limited who the contingent beneficiaries were. (In re Shafer’s Estate (1969) 269 Cal.App.2d 538, 543–545 [limiting contingent beneficiaries to blood related parents of grandchildren].)

When can a Contingent Beneficiary Begin Litigation?

A contingent beneficiary may bring an action to enforce their interests if they think their interests should have vested. Upon their interest vesting, a contingent beneficiary can bring an action against third parties. In the case of a trust, if the trustee fails to act the beneficiary can step in. (Pillsbury v. Karmgard (1994) 22 Cal.App.4th 743, 756.) This also applies if the beneficiary feels property was wrongly transferred, in order to recover it or proceeds of the property sale. (Wolf v. Mitchell, Silberberg & Knupp (1999) 76 Cal.App.4th 1030, 1038.)

Alternatively, where an instrument like a trust is vague in describing the class of people it benefits, beneficiaries may need to take action to ensure they will receive what they are meant to. (Prob. Code. 15404(c).) 

If this implicates real property, disputes about ownership will likely arise. Following the distribution of an estate whether through a will or trust, primary and contingent beneficiaries may end up co-owning property. Because of these divided interests a partition may be useful for beneficiaries who wish to dispose of the property following distribution.

What are Some Examples of a Contingent Beneficiary?

For example, Julie and Shawn are siblings. Their grandfather Frank names all his grandchildren as beneficiaries who are alive at his death. If Julie and Shawn are the only grandchildren, then they are the only beneficiaries. Up until Frank dies, any other children born would be part of this class of contingent beneficiaries. 

If Frank named his beneficiaries vaguely in the trust instrument the court would interpret Frank’s intent based on the instrument and may consider extrinsic evidence. 

Where the instrument gave Shawn and Julie Frank’s home in equal shares, upon Frank’s death Shawn and Julie would get this interest in the home, vesting their interests as beneficiaries. Upon Frank’s death if both Shawn has his own home and family, wanting nothing to do with Frank’s home he could begin a partition action. This would allow Frank’s home to be sold and Shawn and Julie would receive the proceeds divided proportionate to their shares. This would only be possible once they were actual owners of the home and thus could not happen before their interest had vested. 

Alternatively, in an insurance context, Frank may name his daughter Lucy as the primary beneficiary of his life insurance policy. He names Julie and Shawn as contingent or alternative beneficiaries to Lucy, their mother. If Lucy dies before Frank does Julie and Shawn would receive the benefits from this life insurance policy. 

If Lucy wanted to get these benefits and killed Frank for them, she would not be able to benefit because she killed him. However, as Julie and Shawn had an independent relationship with their grandfather the fact that their mother killed Frank would not necessarily prevent them from receiving benefits. 

Conclusion

If you are a contingent beneficiary or there are contingent beneficiaries you think may co-own property with, you may want to pursue a partition action. If there is disagreement among beneficiaries as to what to do with property after estate distribution, at Underwood Law, our partition attorneys can help you navigate your partition action efficiently and with care. We are here to help.