A beneficiary is a person or entity who receives or would receive benefits from the acts of another or as gifts.
Beneficiaries are usually named to receive these benefits from 3 common events:
- Stated in will
- Life insurance payout
In Singapore, it is also possible to nominate CPF beneficiaries for the distribution CPF savings according to the wishes of demised.
A person would usually want family members to receive what he or she has earned in life.
It must be noted that death does not need to occur for a beneficiary to receive benefits from such legal arrangements.
For example, a living person can very well set up a trust made up of assets with the beneficiary receiving benefits immediately or in the near future.
Beneficiaries listed in these different legal instruments can be different in the mechanisms of how they work.
Beneficiary named in will
When someone dies and have prepared a will that describes the proper allocation and distribution of his or her assets, those who would inherit the assets and benefits as stipulated in the will are the beneficiaries.
Heirs are beneficiaries, but not all beneficiaries are heirs.
A receiver of personal property can also be called a legatee. And a receiver of real property can be called a devisee.
Both are beneficiaries.
In the absence of a valid will that can be legally executed, the probate process would be enlisted to determine the rightful heirs and beneficiaries of the assets left behind by the deceased.
In the absence of legal beneficiaries or claimants on very rare occassions, the escheating process would commence to revert ownership back to the government.
Beneficiary of life insurance
Life insurance are basically policies that payout a sum of money to a party upon the death of the insured.
The receiver(s) of the payout would be the beneficiary.
For example, the person who receives the payout from a life insurance policy after the death of the insured is the beneficiary.
These beneficiaries can also be arrange in a structured order where there would be a primary beneficiary designated, followed by contingent beneficiaries.
Contingent beneficiaries would receive the benefits in place of the primary beneficiary should the latter be unable to receive the benefits (e.g. due to death).
It is important to note the material differences between an insured, a policy holder, and a beneficiary.
A son for example, can purchase life insurance for his mother, and list his children as beneficiaries instead of himself.
Beneficiary of Trust
A trust is essentially an estate planning tool used by someone to ensure that how he or she plans for assets to be used are executed according to his or her wishes.
Legally, it is a three-way relationship consisting of:
- Trustor or settler (original owner of assets)
- Trustee (holder of legal title for assets)
- Beneficiary (ultimate receiver of assets)
Trust funds are common legal instruments that the wealthy use to ensure that children who have yet to reach adult age are financially taken care of.
This is also why beneficiaries who are too young would seldom receive the bulk of the assets until they reach adult age.
The slow release of financial assets tied to milestones that has to be reached, can be a useful way to prevent abusive consumption of the assets.
This prevents financial mismanagement and the potential squandering of the fortune that one has painstakingly accumulated over a lifetime.
Extra care should be taken when one is buying, selling or renting property that is held in a trust. This is because there’s always a chance that the beneficiary claims that actions taken by the trustee is illegal.
A simple solution to this is to have the beneficiary sign any sale or rental documents.