The Definition of FBO in Financial Documents
The designation “FBO” means “for the benefit of.” It can appear in a variety of financial and legal documents.
An FBO Trust
"Jane Smith Living Trust UAD 02/17/17 FBO Jake and Joe Smith.”
The translation works out something like this: Jane Smith has created a living trust under an agreement dated February 17, 2017, to own the life insurance policy and collect its eventual proceeds.
The trust is for the benefit of her sons, Jake and Joe Smith, who will inherit the policy's death benefits when she dies. The FBO designation effectively establishes the living trust’s purpose. Jake and Joe are the trust's primary beneficiaries.
Other FBO Designations
An FBO designation can appear on any account or asset that carries a beneficiary designation – the term is not reserved for living trusts. Here are some examples.
- Jane Smith wants to roll over her 401(k) to her IRA. She makes all the proper arrangements and receives a check from the 401(k) plan administrator for her account balance. The check will most like be made out to the IRA plan administrator with the notation, “FBO Jane Smith.” The funds have been directed to the new account and they are for the benefit of Jane. Had the check been made out to Jane, it may have counted as a 401(k) distribution incurring taxes and penalties if she didn’t deposit it directly into another retirement account within a limited period of time.
- Children can’t legally hold their own money or property, so an FBO designation will also sometimes appear on checks or other financial instruments directing funds to them. If a minor were to inherit $50,000 from a relative’s estate, the check might read “FBO Sally Smith” after the name of Sally’s mother as the payee or, if the parents have died, the name of the conservator or trustee who will be managing the child’s property and money until she reaches the age of majority. This might also be the case if the beneficiary of the funds is mentally incapacitated or otherwise unable to handle her own affairs so someone else has been appointed to do so for her.
- An FBO designation might also appear on an electronic transfer of funds to a bank. The check may be made out to the bank but will immediately be transferred to a specified beneficiary’s account.
- The designation might also appear if you’re sending money to a named charity to raise money for a specific cause, such as to “The Hospice Fund FBO Jane Smith.”
NOTE: Laws can change periodically and the above information may not reflect the most recent changes. Please consult with an attorney or financial advisor for the most up-to-date advice if you’re considering naming an FBO beneficiary to any account. The information contained in this article is not intended as legal advice and it is not a substitute for legal advice.