What is a Beneficiary?

Beneficiaries are individuals or entities that receive assets or some other type of financial benefit from a benefactor. A beneficiary often receives these benefits as part of an inheritance, or as the recipient of a cash payment from a life insurance policy. An entity such as a city or town may be considered a beneficiary if the municipality receives support and aid in order to overcome a natural disaster, or is the recipient of funds donated for a specific building project, such as a municipal library.

When most people think of a beneficiary, the first thing that comes to mind is someone who receives an inheritance. In order to make sure that the assets of an estate are divided according to the wishes of the owner after his or her death, a legal document known as a will is drafted. The will addresses different holdings that are associated with the estate, such as cash on hand, property, life insurance policies, investment instructions such as stocks and bonds, and even furniture and the personal effects of the owner.

As part of the process, the will provides specific instructions as to who is supposed to receive which assets currently in the possession of the owner. Once the owner dies, an individual designated as the trustee for the estate will carry out the wishes of the deceased, making sure that each of his or her holdings is delivered to the designated individual. A will can designate a single beneficiary, or include multiple beneficiaries, depending on the provisions put in place by the owner.

Wills and insurance policies often include what is known as a contingent beneficiary. This is simply an individual or entity that will benefit from the estate in the event that a primary beneficiary is also deceased. For example, a spouse may be the primary beneficiary in a will, but if he or she is also deceased, the assets of the estate may pass to a child or other relative. Close friends and various non-profit organizations can also be designated as contingent beneficiaries.

An individual may also be the beneficiary of a trust arrangement. Trusts allow individuals to leave their assets in the hands of an administrator, who is responsible for using those resources to care for people or causes that were important to the deceased. For example, a parent may choose to structure the estate so that all the assets are sold and the proceeds placed into a trust. Over time, the funds within the trust can be used to provide children with an education, a home, or any other purpose specified in the terms of the trust. Parents sometimes choose this approach as means of ensuring their children are provided for properly, even once they reach adulthood.

Municipalities can also be designated as beneficiaries. Individuals may choose to leave their property and other holdings to the community, with a stipulation that the assets are used to benefit the city or town in some way. This can include using the assets to build a library, a community playground for children, or establish some type of ongoing scholarship program for people who are residents of the municipality.