You may have used the terms “heir” and “beneficiary” interchangeably to mean someone who is going to inherit from your estate after you pass away. While these terms essentially mean that, it’s important to know the distinction as you plan your estate.
Making the mistake of using heir when you mean beneficiary can create major issues in your estate plan. Here’s what you should know:
What is an heir?
An heir is the next of kin who would benefit from your estate if you died intestate. Intestate means that you passed away without a legal will and the state is responsible for distributing and managing your estate. Without knowing who you wished to benefit from your estate, the state may reach out to your heirs.
The next of kin usually starts with a spouse. If you don’t have a spouse, the next of kin can follow your children, parents, siblings and extended family. In other words, the next of kin is your closest living legal or blood relative.
What is a beneficiary?
The biggest part of making an estate plan is naming beneficiaries. A beneficiary is anyone who wishes to benefit from your estate. A beneficiary typically has a legal claim over your assets before any heirs.
Many people name primary beneficiaries in their estate plans. You may name a spouse, children, friends, colleagues or charities as your primary beneficiary. A contingent beneficiary can be named if the primary beneficiary can’t be located, refuses the assets or has passed away by the time of your death.
It can help to reach out for assistance as you learn the different terminology and your legal options when planning your estate.