What Does 'Tertiary Beneficiary' Mean?

By Christine Funk, J.D.

What Does 'Tertiary Beneficiary' Mean?

By Christine Funk, J.D.

Creating a will, a revocable living trust, or an irrevocable trust is a necessary but challenging task during the estate planning process. One of the many decisions involved in drafting a these kinds of documents concerns who inherits your assets. Not only can you name specific people or groups of people, you can specify how they should share an asset or even in which order they might receive it, should others be unable to accept for some reason. The term "tertiary" means third in either level, value, or order. In terms of inheritance, a tertiary beneficiary is the third beneficiary in line for an asset. It does not refer to a ⅓ share of ownership.

Mother sitting with infant on her lap while father leans over her shoulder signing paperwork

Naming Tertiary Beneficiaries

Consider, for instance, a couple, Sam and Jane, who have one child, Julia. Imagine Sam and Jane own a profitable summer camp along the North Shore in Minnesota. Jane may put in her will that she leaves her interest in the summer camp to Sam as her primary beneficiary.

However, in the event Sam predeceases her, Jane leaves the summer camp to Julia as secondary beneficiary. In the event Sam and Julia both predecease her, Jane can leave the summer camp to a tertiary beneficiary: a nonprofit organization for children who have special needs.

Tertiary Order of Inheritance

In order for the nonprofit organization to inherit the summer camp, both Sam and Julia must be unavailable to inherit. If either Sam or Julia can inherit the camp, the nonprofit will see no benefit from the death of Jane and specifically will not inherit the camp.

The camp first goes to Sam, if Sam is available, with Julia and the nonprofit receiving no part of the camp. If Sam is unavailable, the camp goes to Julia, with the nonprofit receiving no part of the camp. Only when neither Sam nor Julia can inherit does the nonprofit stand to inherit the camp.

Dividing an Inheritance

On the other hand, if Jane intends for the camp to transfer to Sam, Julia, and the nonprofit, Jane must use different words to express her wishes. Instead of using the term tertiary beneficiary, which only includes the third in line if the first two are out of line at the time of Jane's death, Jane can use other words to convey her intent that each of the three receive ⅓ (or shares split otherwise) of the summer camp.

Creating documents that allow you, rather than the government, to make decisions about your assets and the guardianship of your children is a plan that can bring reassurance and peace. However, it can feel overwhelming as you struggle to decide which is best for you and your family. Typically, it is a good idea to have some guidance when deciding which is best for your circumstances. When it comes to the matter of designating who receives what property from you after you die, consider assigning a third beneficiary to account for as many scenarios as possible. Making these decisions now gives you greater control over what happens to your assets after you're gone.

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