Beneficiary
A person or entity designated to receive assets, proceeds, or benefits from an account, policy, or trust.
What is Beneficiary?
A beneficiary is any person, organization, or trust designated to receive assets upon the death of the account holder or policyholder. Beneficiary designations govern the distribution of retirement accounts (401(k), IRA), life insurance policies, annuities, and certain bank accounts (payable-on-death). Critically, beneficiary designations override what is written in a will — a named beneficiary receives assets directly, outside of probate. Keeping beneficiary designations current is one of the most important and most neglected aspects of financial planning: failure to update after divorce, remarriage, or the death of a named beneficiary can result in assets passing to unintended parties.
Example
An investor fails to update the beneficiary on their IRA after a divorce. The account still lists their ex-spouse as primary beneficiary. When the investor dies, the ex-spouse legally inherits the $400,000 IRA — regardless of what the will says, and despite the investor having remarried. The Supreme Court case Kennedy v. Plan Administrator (2009) confirmed that beneficiary designations on ERISA plans are controlling, highlighting why periodic review is essential.
Source: Investopedia — Beneficiary