To ensure that your wealth is distributed according to your wishes, it’s important to designate both primary and secondary (or “contingent”) beneficiaries for your will, trusts, retirement plans and life insurance policies. A 2012 federal court case demonstrates what can happen if you name a single beneficiary without a backup.

In Herring v. Campbell, the Fifth U.S. Circuit Court of Appeals held that a pension plan administrator didn’t abuse her discretion in denying benefits to a deceased participant’s stepsons. The retired employee had participated in a company pension plan that allowed him to designate a primary and secondary beneficiary. In 1990, and again in 2001, he designated his wife as primary beneficiary but didn’t designate a secondary beneficiary. His wife died in 2004 and he died the following year without having designated a new beneficiary.

In the absence of a valid beneficiary, the plan called for benefits to be distributed in the following order of priority:

• Surviving spouse,
• Surviving children,
• Surviving parents,
• Surviving brothers and sisters, and
• Estate’s executor or administrator.

After the employee died, the plan administrator denied benefits to his stepsons, even though he’d left his estate to them and referred to them in his will as his “beloved sons.” Because he had no surviving spouse, parents or children, his six siblings received the benefits, totaling more than $300,000.

The court upheld the administrator’s decision, rejecting the stepsons’ claim that they should be treated as the employee’s children under the doctrine of  “equitable adoption.” The administrator interpreted “children” to mean biological or legally adopted children, finding that to include equitably adopted children would create uncertainty and invite disputes over whether individuals have been equitably adopted. This, the court said, was a fair reading of the plan. Had the employee named his stepsons as secondary beneficiaries of the pension plan, this dispute could have been avoided.