beneficiary

A beneficiary is an individual or entity designated to receive benefits. Beneficiaries arise under different legal arrangements, including wills and trusts (distributions of property) and contracts (such as life insurance policies). Beneficiaries may be natural persons, corporations, or organizations such as charities. A trust cannot exist if the same person is both sole trustee and sole beneficiary.

Wills and Trusts

A beneficiary is one designated in a will, revocable trust, or irrevocable trust to receive property from the testator or grantor. A beneficiary must be definite, meaning reasonably ascertainable now or in the future. Property subject to distribution may include real estate, personal property (such as artwork, jewelry, vehicles, or books), and financial assets (such as cash, bank accounts, or securities).

The definite-beneficiary rule in express trusts requires that the beneficiary’s identity be ascertainable. Under the Uniform Trust Code, some exceptions exist for non-charitable purpose trusts, which may be enforced without ascertainable beneficiaries but remain subject to the rule against perpetuities, usually limited to 21 years. A charitable trust without a specified beneficiary or purpose may fail unless a court applies cy pres to select a purpose consistent with the grantor’s intent.

Beneficiaries under wills have rights to information about the estate before distribution and may challenge the executor for lack of transparency or breach of fiduciary duty. Trust beneficiaries have rights to accounting records from trustees and may bring legal action in probate court to enforce fiduciary duties. Courts may remove and replace fiduciaries who breach those duties.

Contract Law

A third-party beneficiary is not a contracting party but may benefit from the contract’s performance. The contracting parties are the promisor, who undertakes to perform, and the promisee, who provides consideration. For example, if a mother purchases medical insurance for her son, the mother is the promisee, the insurer is the promisor, and the son is the third-party beneficiary.

Generally, nonparties cannot enforce a contract. However, an intended third-party beneficiary may enforce rights once they vest. Rights vest when the beneficiary knows of the promise and manifests assent, files suit, detrimentally relies on it, or when the contract expressly provides for vesting. Before vesting, the contracting parties may modify or rescind the contract without the beneficiary’s consent. After vesting, modification requires the beneficiary’s consent.

Classifications of Third-Party Beneficiaries

Intended Beneficiary

An intended beneficiary is a person whom the contracting parties intended to benefit, even if not identified when the contract is formed. They may enforce the contract.

Donee Beneficiary

 A donee beneficiary is a third party who is intended to receive a benefit under a contract as a gift. Courts have long recognized the enforceability of such rights. For example, in Lawrence v. Fox, 20 N.Y. 268 (1859), the New York Court of Appeals held that an intended beneficiary could sue to enforce a promise made for their benefit, even though they were not a contracting party.

Creditor Beneficiary

A creditor beneficiary is a third party who benefits from a contract because the promisee owes them a debt or duty, and the promisor agrees to perform in a way that satisfies that obligation. This principle was also recognized in Lawrence v. Fox, 20 N.Y. 268 (1859), where the Court allowed a creditor to enforce a promise made for their benefit.

Incidental Beneficiary

An incidental beneficiary is a third party beneficiary that benefits indirectly but was not intended to receive contractual rights. Incidental beneficiaries have no enforceable rights and cannot sue for breach.

Rights of Beneficiaries

Third-party beneficiaries, once vested, may sue the promisor to enforce the contract or recover damages for breach. Promisors may assert against them the same defenses available against the promisee. Donee beneficiaries cannot compel delivery of a promised gift but may recover under equitable principles. Creditor beneficiaries may sue to enforce satisfaction of a debt owed by the promisee.

Where a contract is conditioned on the beneficiary’s satisfaction, courts apply a subjective test: it is enough that the beneficiary honestly believes the condition has or has not been satisfied.

[Last reviewed in August of 2025 by the Wex Definitions Team] 

Wex