Tertiary beneficiary

Tertiary beneficiary - a person or entity who occupies the third level in succession of beneficiaries and is designated to receive assets or life insurance proceeds provided that the primary and contingent (secondary) beneficiaries predeceased the testator or the insurance holder (H.W. Rubin 2000, p. 518).

However, due to the possibility of including so-called survivorship provisions in the last will or life insurance, a tertiary beneficiary is a person or entity entitled to inherit assets or life insurance proceeds if he or she outlives the primary and secondary beneficiaries upon the moment when the last will becomes legally effective or the sum of insurance is to be paid out. Therefore, it means that the beneficiaries become entitled to obtain estate or the policy sum providing that the survivorship period ends, not if they outlive the testator or policyholder.

What is also worth noticing is the fact that the word tertiary does not indicate that the person stipulated as beneficiary is the third of all beneficiaries because it is possible to name more than one person to be primary or secondary beneficiary e.g. William Smith designates his wife, Ann, to be primary beneficiary, his children, Mary and John, to be secondary beneficiaries, and his parents, Hannah and George, to be tertiary beneficiaries (D. Senger 1981, p. 29).

"Per capita" and "per stirpes" designation

Imagine such a situation in which William Smith e.g. purchases a life insurance policy and designates his wife, Ann, to be primary beneficiary, and his children, Mary and John, to be secondary beneficiaries and there is no survivorship provisions included in the policy. Mary does not have children on her own yet and John has a son and a daughter.

Supposing that William's wife and son die before him, Mary will receives the whole sum of the life insurance unless William stipulated in the policy provisions that the insurance proceeds should be divided in accordance with one of the following designations:

• Per capita (meaning for each head) - proceeds are to be divided equally among all survivors.
• Per stirpes (meaning through the root) - each branch of the family is to receive an equal share of the proceeds.

Therefore, if William stipulated that the proceeds are to be divided per capita then, in the example described above, Mary and John's surviving children will receive one third of the insurance proceeds each. However, if it was specified that the proceeds are to be split per stirpes then Mary will obtain half of the proceeds and John's surviving children will obtain one fourth each because Mary is one branch and John's children are the other branch of the family (D. Senger 1981, p. 30; BISYS Group 2013, p. 195-196).

Examples of Tertiary beneficiary

• A tertiary beneficiary can be a grandchild of the testator or the insurance holder. In this case, the assets or life insurance proceeds will be given to the grandchild if the primary and secondary beneficiaries have both predeceased the testator or the insurance holder.
• A tertiary beneficiary can also be a charity or an organization. For example, if the primary and secondary beneficiaries have both predeceased the testator or the insurance holder, then the assets or life insurance proceeds will be given to the charity or organization designated by the testator or the insurance holder.
• Other examples of tertiary beneficiary are a relative, a friend, or a colleague of the testator or the insurance holder. In this case, the assets or life insurance proceeds will be given to the relative, friend, or colleague if the primary and secondary beneficiaries have both predeceased the testator or the insurance holder.

Advantages of Tertiary beneficiary

A tertiary beneficiary is a person or entity who is designated to receive assets or life insurance proceeds if the primary and contingent (secondary) beneficiaries predecease the testator or the insurance holder. Below are the advantages of having a tertiary beneficiary:

• Ensures that assets or life insurance proceeds are not lost in the event that the primary and secondary beneficiaries are not alive to receive them. This can be beneficial in cases where the primary and secondary beneficiaries are young, since the tertiary beneficiary designation can help ensure that the assets or proceeds are not lost in the event of an untimely death.
• Provides peace of mind to the testator or insurance holder, knowing that their assets or life insurance proceeds are not at risk of being lost to the state.
• Gives the testator or insurance holder the flexibility to designate a broad range of beneficiaries, including family members, friends, organizations, or charities. This allows them to structure the distribution of their assets or proceeds to best fit their wishes.

Limitations of Tertiary beneficiary

A tertiary beneficiary is one who occupies the third level in succession of beneficiaries and is designated to receive assets or life insurance proceeds provided that the primary and contingent (secondary) beneficiaries predecease the testator or the insurance holder. However, there are certain limitations to being a tertiary beneficiary. These include:

• Lack of control over the assets - A tertiary beneficiary has no control over the assets and may not receive them unless all previous beneficiaries have passed away.
• Limited knowledge of the assets - Tertiary beneficiaries may not have full knowledge or understanding of the assets as they have not been informed of them by the testator or insurance holder.
• Reduced access to financial protection - As a tertiary beneficiary has no control over the assets, they are not able to benefit from any financial protection that may be associated with the assets.
• Delayed access to the assets - Tertiary beneficiaries may not receive the assets until the death of all previous beneficiaries, meaning they must wait a long time before they receive them.

Other approaches related to Tertiary beneficiary

Introduction:

Apart from the definition of Tertiary beneficiary, there are other approaches related to the concept. These include:

• The approach of asset distribution - this approach is based on the distribution of assets in the event that the primary and secondary beneficiaries are unable to receive them. In such cases, the tertiary beneficiary is designated to receive the assets from the estate.
• The approach of life insurance - in the context of life insurance, the tertiary beneficiary is designated to receive the life insurance proceeds in the event that the primary and secondary beneficiaries are no longer alive. This approach ensures that the proceeds are still passed on to the designated beneficiaries.
• The approach of inheritance - in some cases, a tertiary beneficiary may be designated to receive an inheritance in the event that the primary and secondary beneficiaries are no longer alive or have disclaimed their inheritance. This approach ensures that the inheritance is still passed on to the designated beneficiary.

Summary:

In conclusion, the concept of Tertiary beneficiary includes the approaches of asset distribution, life insurance and inheritance. These approaches are based on the distribution of assets in the event that the primary and secondary beneficiaries are unable to receive them. The tertiary beneficiary is then designated to receive the assets, life insurance proceeds or inheritance.

Tertiary beneficiary — recommended articles

Dual insurance — Spendthrift clause — Collateral assignment — Absolute assignment — Pendente lite — Ex Gratia Payment — Executed consideration — Average clause — Advance payment bond

References

• BISYS Group (2013), Life and Health Insurance License Exam Cram, Que Publishing, Indianapolis, Indiana
• Marcinko D.E. (2006), Dictionary of Health Insurance and Managed Care, Springer Publishing Company Inc., New York, New York
• Reiff M.R. (2005), Punishment, Compensation, and Law: A Theory of Enforceability, Cambridge University Press, New York, New York
• Rubin, H.W. (2010), Dictionary of Insurance Terms, Barron's Business Guides, Hauppauge, New York
• Senger D. (1981), Who will collect on your life insurance?, "Kiplinger's Personal Finance Magazine The Changing Times Vol.35, No.6", Kiplinger Washington Editors, Inc.

Author: Maksymilian Piaskowski