Beneficiary

Definition

A Beneficiary is a person or entity who has a legal right to receive benefits, assets, or payments from a trust, will, life insurance policy, pension scheme, or other legal arrangement. The entitlement can be fixed or discretionary, depending on the governing document.

Why it matters

Clearly identifying beneficiaries is essential for the proper administration of trusts, estates, insurance claims, and similar arrangements. It ensures that assets are distributed according to the settlor’s, testator’s, or policyholder’s wishes, and helps prevent disputes.

In the UK, beneficiary details may need to be disclosed for tax, compliance, or anti-money laundering (AML) purposes, particularly in relation to trusts and certain corporate structures.

How beneficiary status works

1. Designation – Named in the governing document (trust deed, will, policy, etc.).
2. Entitlement type – May be absolute (fixed share or specific asset) or discretionary (trustees decide what, when, and how much to provide).
3. Conditions – Some benefits are conditional on events, such as reaching a certain age or meeting specified criteria.
4. Payment or transfer – Assets or benefits are delivered in accordance with the terms of the arrangement and applicable law.

Examples and use cases

• Trust – Children named to receive income or capital from a family trust.
• Will – A charity specified to receive a legacy.
• Insurance policy – A spouse named to receive the death benefit from a life policy.
• Pension scheme – Dependants listed to receive benefits upon the member’s death.

Mini-FAQ

Q: Can a beneficiary also be a trustee?
A: Yes, but they must act in the best interests of all beneficiaries, not just themselves.

Q: Can a beneficiary’s entitlement be changed?
A: In a discretionary trust, the trustee can vary distributions; in a fixed trust, changes usually require a deed of variation or court order.