Beneficiary
Definition
A person or entity designated to receive the benefits from a financial account, insurance policy, trust, or estate upon the account holder's death.
A beneficiary is whoever you name to receive your assets when you die. This designation applies to life insurance policies, retirement accounts (401k, IRA), bank accounts, brokerage accounts, and trusts.
Beneficiary designations are one of the most important — and most overlooked — parts of financial planning. They override your will. If your will says everything goes to your spouse but your 401k still lists an ex-spouse as beneficiary, the ex-spouse gets the 401k. Courts have consistently upheld this.
There are two types: primary beneficiaries (who receive assets first) and contingent beneficiaries (who receive assets if the primary beneficiary has already died). You can name multiple beneficiaries and specify what percentage each receives.
Life events that should trigger a beneficiary review: marriage, divorce, birth of a child, death of a named beneficiary, and significant changes in financial circumstances. Financial advisors recommend reviewing beneficiary designations annually.
Tracking all accounts with beneficiary designations in Clarity helps ensure your estate plan stays current and nothing falls through the cracks.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Can I name a minor as a beneficiary?
Technically yes, but minors can't directly receive assets. The proceeds would go to a court-appointed guardian until the child reaches legal age. A better approach is naming a trust as beneficiary with the minor as the trust's beneficiary.
What happens if I don't name a beneficiary?
The asset goes through probate and is distributed according to the financial institution's default rules (usually to your estate). This can result in delays, legal costs, and the assets going to someone you didn't intend.