Beneficiaries: Overview, definition, and example
What are beneficiaries?
Beneficiaries are individuals or entities that receive benefits, rights, or advantages from a legal arrangement, such as a trust, insurance policy, will, or contract. In the context of a trust, for example, beneficiaries are the people or organizations that the trust is set up to benefit, typically receiving assets or income as specified by the trust's terms.
Beneficiaries can be designated to receive benefits from a wide range of legal instruments, and the specific terms of what the beneficiary receives—whether it’s money, property, or other assets—are typically defined within the governing document, such as a will or agreement.
Why are beneficiaries important?
Beneficiaries are important because they are the parties who ultimately receive the benefit of an agreement, trust, or legal arrangement. Understanding who the beneficiaries are and what they are entitled to is crucial for ensuring that the purpose of the legal arrangement is fulfilled and that the parties receiving the benefits are clearly identified.
For businesses and individuals setting up trusts, wills, or insurance policies, naming beneficiaries helps ensure that assets are distributed according to their wishes and legal obligations are met. For beneficiaries, understanding their rights and entitlements ensures they can claim their benefits in the proper way and at the appropriate time.
Understanding beneficiaries through an example
Imagine a family trust is created, with the purpose of providing financial support to the children of a family. The beneficiaries of the trust are the children, and they are entitled to receive distributions from the trust as they reach certain milestones, such as graduating from college. The trust document specifies that the children will receive equal shares of the trust’s assets, and the trustee is responsible for managing the funds on behalf of the beneficiaries.
In another example, a person, Person A, creates a will and names their spouse and children as beneficiaries. The will specifies that upon Person A’s death, the estate will be divided equally among the spouse and children. Each beneficiary is entitled to a specific portion of the estate, such as a percentage of the total value or certain items of personal property.
An example of beneficiaries clause
Here’s how a beneficiaries clause might appear in a trust or insurance policy:
“The beneficiaries of this Trust are the Settlor’s children, as listed in Exhibit A. The Trustee shall distribute the income and principal of the Trust to the beneficiaries in equal shares, subject to the terms set forth in this Agreement. If any beneficiary is deceased at the time of distribution, their share shall pass to their designated heirs, unless otherwise stated in this Agreement.”
Conclusion
Beneficiaries are key parties in legal arrangements such as trusts, insurance policies, and wills, who are entitled to receive specific benefits or assets as dictated by the terms of the agreement. Whether in family trusts, charitable foundations, or insurance claims, identifying and understanding the rights of beneficiaries is crucial to ensure that assets are distributed according to the intention of the person setting up the arrangement. For both the parties setting up the legal document and the beneficiaries themselves, clarity in these provisions helps prevent disputes and ensures smooth execution of the arrangement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.