A beneficiary is a person, organization, or entity you designate to receive assets from your estate, trust, retirement account, insurance policy, or other financial account [1].
Where Beneficiaries Are Named
Beneficiaries appear in two places:
In your will or trust. Your will names who receives your assets after they go through probate. A trust names who receives assets held in the trust [3].
On financial accounts directly. Retirement accounts (401(k), IRA), life insurance policies, and some bank and investment accounts allow you to name a beneficiary on the account itself [2]. These designations override your will. If your will says one thing and the account beneficiary says another, the account beneficiary wins.
Why Beneficiary Designations Matter
Because they operate independently from your will, beneficiary designations are one of the most commonly overlooked parts of estate planning. Outdated designations can send assets to the wrong person, often an ex-spouse or a deceased relative [2].
Review your beneficiary designations whenever you experience a major life event: marriage, divorce, birth of a child, or death of a previously named beneficiary.
Primary vs. Contingent
A primary beneficiary is your first choice to receive the asset. A contingent beneficiary is the backup, receiving the asset only if the primary beneficiary has died or can't be located [2]. Always name both.
Naming Minor Children
Naming a minor child as a direct beneficiary creates complications. Children can't legally receive or manage large sums, so a court would need to appoint a custodian [2]. It's generally better to name an adult (often a spouse) as primary beneficiary and a trust as contingent beneficiary when minor children are involved.
Related Terms
Executor: The person who distributes assets named in your will. Probate: The court process for distributing assets under a will.
See also: Estate Planning When You Have Minor Children for how beneficiary designations affect families with kids.