Definition
FBO stands for “For Benefit Of”. It can appear in various types of financial and legal documents. You will often see it in living trust documents. However, the term “FBO” can appear on any account or asset that has a beneficiary designation.
Definitions and Examples of FBO
The term FBO is commonly used when a living trust is designated as the beneficiary of a life insurance policy. You might notice a designation like this as the beneficiary designation in the life insurance document:
“Jane Smith Living Trust under Agreement dated 02/17/18 FBO Jake and Joe Smith.”
What this means is that Jane Smith established a living trust under an agreement dated February 17, 2018. The trust was created to hold the life insurance policy and ultimately collect its benefits. The trust is for the benefit of her children, Jake and Joe Smith. They will inherit the death benefits of the policy upon her passing.
The FBO designation effectively establishes the purpose of the living trust. Jake and Joe are the primary beneficiaries of the trust.
How Do FBO Designations Work?
FBO designations can also assist in facilitating transfers of funds in other situations where there may be legal or tax issues. These situations include 401(k) transfers, electronic money transfers, and charitable donations.
FBO Designations on Retirement Plans
Let’s say Jane Smith wants to transfer her 401(k) account into her IRA. She makes all the necessary arrangements and receives a check from the 401(k) account administrator for the balance of her account. The check will likely be issued to the IRA account administrator with the notation “FBO Jane Smith”. It will look like this:
“Management Trust Group, FBO Jane Smith / Account #XXXXX”
The funds are directed to the new account. They are payable to the plan account administrator, but they are for the benefit of Jane.
If the check were directed straight to Jane, it would be considered a distribution from the 401(k). Jane would incur taxes and penalties if she does not deposit the money directly into another retirement account within 60 days. But with the FBO designation, the transfer occurs without the money passing through Jane’s hands. Because of that, it is not subject to tax.
When Beneficiaries Are Minor Children
Children cannot legally hold their own money or property. Therefore, an FBO designation will sometimes also appear on checks or other financial instruments directing funds to them.
For example, let’s assume that minor Sally Smith inherits $50,000 from a relative’s estate. In this case, the check might read “FBO Sally Smith,” after her mother’s name as the payer. If her parents are deceased, the designation will name the guardian or conservator who will manage the minor’s property and funds until they reach adulthood.
This may also be the case if the beneficiary of the funds is mentally incapacitated or unable to manage their personal affairs until someone else is appointed to do so on their behalf.
Electronic Bank Transfers
An FBO designation might also appear in an electronic funds transfer to a bank. The check may be written payable to the bank, but it will be promptly transferred to the designated beneficiary’s account.
Charitable Donations
An FBO designation may also appear if you are sending money to a specific charity for a specific cause. For example, it might read “ICU Fund FBO Jane Smith.”
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy and reliability of our content.
Edward Jones. “Custom Beneficiary Designations.” Accessed July 1, 2021.
Fidelity.
“Fidelity Investment-Only Non-Prototype Retirement Account Conversion Application,” Pages 1, 8-9. Accessed July 1, 2021.
IRS. “Rollovers of Retirement Plan and IRA Distributions.” Accessed July 1, 2021.
FDIC. “Fiduciary Accounts,” Pages 122-123. Accessed July 1, 2021.
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