Legal Definitions - beneficiary

A beneficiary is an individual or entity designated to receive a benefit, asset, or advantage from a legal arrangement, such as a will, trust, or contract. Essentially, they are the recipient of a legal gift or obligation.

In the context of wills and trusts, a beneficiary is someone named by a person (the testator in a will, or grantor in a trust) to receive specific property, money, or other assets after the testator's death or under the terms of the trust.

In contract law, a beneficiary is often a "third-party beneficiary" – someone who is not one of the original parties to a contract but is intended to receive a benefit from its performance. These are typically categorized as:

• Intended Beneficiary: The contracting parties specifically create the contract with the purpose of benefiting this third party. An intended beneficiary generally has legal rights to enforce the contract if the promised benefit is not delivered.
• Incidental Beneficiary: This is someone who happens to benefit from a contract but was not the intended recipient of the benefit by the contracting parties. Incidental beneficiaries typically have no legal rights to enforce the contract.

Here are some examples illustrating the concept of a beneficiary:

• Example 1: Inheritance through a Will

  When Ms. Eleanor Vance passed away, her will stipulated that her entire antique doll collection should be given to her niece, Clara. In this scenario, Clara is the beneficiary of Ms. Vance's will, specifically designated to receive the doll collection. The will is the legal instrument that confers this benefit upon Clara.

• Example 2: Life Insurance Policy

  Mr. David Chen purchases a life insurance policy and names his daughter, Sarah, as the sole recipient of the policy's payout upon his death. Here, Mr. Chen (the policyholder) and the insurance company are the contracting parties. Sarah is the beneficiary because the contract is specifically designed to provide a financial benefit to her, even though she is not a party to the insurance agreement itself. She is an intended (donee) beneficiary, as the benefit is a gift from her father.

• Example 3: Business Debt Arrangement

  A small construction company, "BuildRight Inc.," owes a significant amount of money to its lumber supplier, "TimberCorp." BuildRight Inc. then secures a large contract with a property developer, "UrbanSpaces LLC," to build a new apartment complex. As part of their agreement, UrbanSpaces LLC promises BuildRight Inc. that it will directly pay TimberCorp for all lumber supplied to the apartment project, thereby reducing BuildRight Inc.'s debt. In this situation, TimberCorp is a beneficiary. It is an intended (creditor) beneficiary because the contract between BuildRight Inc. and UrbanSpaces LLC is specifically structured to satisfy BuildRight Inc.'s debt to TimberCorp, even though TimberCorp is not a direct party to that contract.