What Is a Beneficiary? A Complete Guide to Beneficiary Designations

7 min read · Updated June 13, 2026

A beneficiary is a person or entity you legally designate to receive assets from a financial account, life insurance policy, retirement plan, or trust when you die. Beneficiary designations are among the most powerful — and most neglected — tools in estate planning. They transfer assets directly to the named person, bypassing your will and probate court entirely.¹

That speed and simplicity is exactly why getting them right matters so much. A designation you set up 20 years ago and never updated will be honored by the financial institution regardless of your current wishes, your current will, or your current family situation.

Types of Beneficiaries

Primary beneficiary: The first in line to receive the asset. If you name your spouse as primary beneficiary on your 401(k), the account goes to your spouse when you die.

Contingent beneficiary (also called “secondary”): Receives the asset only if the primary beneficiary is dead, cannot be located, or disclaims the inheritance.² Without a contingent beneficiary, a financial institution typically pays the asset to your estate if the primary beneficiary is deceased — triggering probate on an account specifically designed to avoid it.

Multiple beneficiaries: You can name multiple primary or contingent beneficiaries and specify the percentage each receives. Percentages must total 100%.

Accounts and Policies That Use Beneficiary Designations

The following pass by designation, not by will:³

• 401(k), 403(b), 457 plans
• Traditional IRAs and Roth IRAs
• Life insurance policies
• Annuities
• Health Savings Accounts (HSAs)
• Bank accounts with a Payable-on-Death (POD) designation
• Brokerage accounts with a Transfer-on-Death (TOD) designation
• Pension plans with survivor benefits

Per Stirpes vs. Per Capita — The Designation That Most People Miss

When naming beneficiaries, you often have a choice between two distribution methods:

Per stirpes (Latin for “by the branch”): If your beneficiary dies before you, their share passes to their children.⁴ Example: You name your daughter as primary beneficiary per stirpes. Your daughter predeceases you with two children. Those grandchildren each receive half of your daughter’s share.

Per capita (Latin for “by the head”): If a beneficiary dies before you, their share is divided equally among the surviving beneficiaries — your grandchildren receive nothing unless they were also named.⁵

Per stirpes is generally the recommended designation for family members with children. Many financial institutions default to per capita, which can produce unintended results. Always verify which method is selected.

Who Can Be a Beneficiary

Individuals: Any adult can be named. Identify each by full legal name, Social Security number, and date of birth to prevent disputes about identity.

Minor children: A minor cannot directly receive an inherited account or insurance payout — a court-appointed guardian of the property must manage assets until the child reaches adulthood, typically 18 in most states.⁶ A better approach is establishing a trust for minor children and naming the trust as beneficiary, so a trustee you choose manages the assets under terms you set.

Trusts: Naming a trust as beneficiary is common for life insurance and can be appropriate for retirement accounts in specific circumstances. Tax rules for inherited retirement accounts changed significantly under the SECURE Act of 2019 and SECURE 2.0 Act of 2022.⁷

Charities: Qualified charitable organizations can be named as beneficiaries. Retirement accounts left to charity pass income-tax-free because charities are exempt from income tax — making retirement accounts an especially tax-efficient asset to leave to charity.⁸

Your estate: Naming your estate as beneficiary means the asset goes through probate, loses its creditor protection, and is subject to your state’s inheritance order if you die intestate. This is almost never advisable for retirement accounts or life insurance.⁹

The SECURE Act and Inherited Retirement Accounts

For retirement accounts, who you name has significant tax implications. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 eliminated the “stretch IRA” strategy for most non-spouse beneficiaries.¹⁰

Under current rules:

• Spouse: Can roll the account into their own IRA and defer distributions based on their own life expectancy
• Eligible designated beneficiaries (minor children of the account owner, disabled or chronically ill individuals, individuals not more than 10 years younger than the account owner): Can take distributions over their own life expectancy¹¹
• All other designated beneficiaries: Must empty the account within 10 years of the account owner’s death under the “10-year rule”¹²
• Non-designated beneficiaries (estates, certain trusts, charities): Must distribute within 5 years if the owner died before required beginning date

The SECURE 2.0 Act of 2022 further modified required minimum distribution rules.¹³ The tax consequences of beneficiary choices on large retirement accounts can be substantial — consult a tax advisor for accounts over $500,000.

Spousal Rights to Retirement Accounts

Federal law under ERISA requires that a surviving spouse be the primary beneficiary of a 401(k) or pension plan unless the spouse has signed a notarized waiver.¹⁴ You cannot legally name a non-spouse as the primary beneficiary of an employer-sponsored retirement plan without your spouse’s written, notarized consent. IRAs are not subject to this requirement.

How to Update Your Beneficiary Designations

Each institution has its own process. Generally:

1. Log in to your account online or contact your HR department (for employer plans)
2. Locate the beneficiary designation section
3. Remove outdated beneficiaries and add current designations with full identifying information
4. Submit and save a copy of the completed form

Critical: The update is not complete until the institution has processed and confirmed it. Simply writing changes on a form and leaving it in a drawer — or stating new wishes in your will — has no legal effect on designated accounts.¹⁵

When to Review Beneficiary Designations

The American Bar Association recommends reviewing designations after any major life event:¹⁶

• Marriage or divorce
• Birth or adoption of a child
• Death of a named beneficiary
• Significant change in financial circumstances
• Moving to a new state (some states have specific rules about surviving spouses)
• Starting a new job or rolling over a retirement account

A complete beneficiary audit — going through every account and policy and verifying that current designations reflect your current intentions — should happen at least every three to five years even without a triggering life event.

The Most Common and Costly Mistakes

Failing to name a beneficiary at all: The account defaults to your estate, triggering probate and eliminating any stretch options for inherited retirement accounts.

Naming a minor child directly: Creates a court-supervised guardianship for assets until the child turns 18 — at which point they receive everything outright, regardless of whether they are mature enough to manage it.

Not updating after divorce: Many people believe a divorce automatically removes an ex-spouse as beneficiary. Under federal law, ERISA-governed retirement plans (401k, 403b) are governed by the plan document, and in many states divorced spouses can still collect if the designation was never updated.¹⁷ Courts have ruled in favor of ex-spouses who were still listed as beneficiaries years after divorce.

Naming a beneficiary with special needs: An outright inheritance can disqualify a person with disabilities from Medicaid and SSI benefits. A special needs trust (third-party SNT) named as beneficiary preserves those benefits while still providing support.¹⁸

References

1. Cornell Law School Legal Information Institute, “Beneficiary,” law.cornell.edu/wex/beneficiary
2. Financial Industry Regulatory Authority (FINRA), “Beneficiaries,” finra.org/investors/insights/beneficiaries
3. U.S. Department of Labor, “What You Should Know About Your Retirement Plan,” dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/what-you-should-know-about-your-retirement-plan
4. Cornell Law School Legal Information Institute, “Per stirpes,” law.cornell.edu/wex/per_stirpes
5. Cornell Law School Legal Information Institute, “Per capita,” law.cornell.edu/wex/per_capita
6. Uniform Transfers to Minors Act, uniformlaws.org
7. Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Pub.L. 116-94
8. Internal Revenue Service, “Charitable Contributions from IRAs,” irs.gov/retirement-plans/ira/charitable-contributions-from-individual-retirement-arrangements-iras
9. FINRA, “Naming Your Estate as Beneficiary,” finra.org
10. SECURE Act of 2019, § 401, amending Internal Revenue Code § 401(a)(9)
11. Internal Revenue Service, “Eligible Designated Beneficiaries,” irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
12. Internal Revenue Service, Publication 590-B, “Distributions from Individual Retirement Arrangements,” irs.gov/pub/irs-pdf/p590b.pdf
13. SECURE 2.0 Act of 2022, Pub.L. 117-328, Division T
14. Employee Retirement Income Security Act of 1974 (ERISA) § 205, 29 U.S.C. § 1055; Retirement Equity Act of 1984
15. Egelhoff v. Egelhoff, 532 U.S. 141 (2001) (beneficiary designation on file with plan administrator controls over state law revocation-on-divorce statutes)
16. American Bar Association, “Estate Planning Checklist,” americanbar.org
17. Ibid., Egelhoff v. Egelhoff
18. Social Security Administration, “SI 01120.200 — Life Estates and Remainder Interests,” ssa.gov/pubs/EN-05-10153.pdf; Special Needs Alliance, specialneedsalliance.org

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