Also known as: beneficiary entity · transferee beneficiary · beneficiary
Written by attorneys · grounded in primary & secondary sources — see below
A party that receives an indirect advantage from a debtor's transfer of property even though the property passes directly to another recipient. Bankruptcy law permits the trustee to recover the value of an avoidable preference from either the direct transferee or this party.
Debtor pays a supplier on an insider's debt. The lender holds a mortgage on the debtor's land. The payment satisfies the insider's obligation and preserves the lender's security interest. The trustee recovers the payment from the lender as the entity for whose benefit the transfer was made.
Promisor pays a sum to a third party at the promisee's direction. The payment satisfies the promisee's separate obligation to that third party. In the promisee's later bankruptcy the trustee treats the third party as the entity for whose benefit the transfer was made and recovers the amount.
Select any source to read its text and confirm it supports the definition.
Landowner conveys an easement without a writing. The beneficiary changes position by building on the servient land. After the landowner's bankruptcy filing the trustee avoids the transfer and recovers from the beneficiary as the entity for whose benefit the conveyance occurred.
Settlor creates a trust with an outright remainder. Changed circumstances prompt a court to convert the remainder into a special-needs trust. The disabled beneficiary receives the economic advantage. The trustee in the settlor's bankruptcy recovers the value from that beneficiary as the entity for whose benefit the modification was made.
Trustee sells trust property below market value. The beneficiary consents to the sale and later receives the proceeds. The settlor's bankruptcy trustee avoids the transfer and recovers the value from the beneficiary as the entity for whose benefit the sale occurred.
Promisor pays a sum directly to a third party under a contract with the promisee. The payment fulfills the promisee's intent to confer a benefit on that third party. The promisee's bankruptcy trustee recovers the payment from the third party as the entity for whose benefit the transfer was made.
Any party that receives an economic advantage from the debtor's payment even though the funds or property pass directly to someone else satisfies the definition. The trustee may recover from that party under section 550 when the other elements of an avoidable preference are present.
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Yes. Section 550 expressly permits recovery from either the initial transferee or the party that benefited from the transfer. The trustee chooses the target that yields the greatest recovery for the estate.
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No. Liability turns on receipt of the benefit, not on knowledge or participation. The statute focuses on the economic effect of the transfer rather than the beneficiary's state of mind.
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