A "Designated Beneficiary" is a term of art under the Internal Revenue Code. It does not mean the individual or entity that you have named as the beneficiary to receive your IRA or Qualified Plan proceeds at your death. Rather, the beneficiary you have named either falls or does not fall within the category of "Designated Beneficiary" under the Internal Revenue Code. If the beneficiary you have named falls within the "Designated Beneficiary" category, then as a general rule, that beneficiary is allowed a longer period to time to withdraw your remaining plan proceeds after your death.
There is a simple way to remember if your named beneficiary falls within the category of "Designated Beneficiary": Does the beneficiary have a heartbeat? In other words,is the named beneficiary an individual? If, so, then he or she falls within the Designated Beneficiary category.
Excerpt from The Complete Guide to Estate and Financial Planning in Turbulent Times (Collaborative Press, 2011) - Walt Dallas, Contributing Author