Two terms that are commonly used interchangeably to mean someone who benefits from an estate are “heir” and “beneficiary.” While these terms both refer to an individual who receives assets from the deceased, they have unique legal uses.
When making an estate plan, it can benefit testators to learn the difference between heirs and beneficiaries. Here’s what you should know:
Beneficiaries benefit from a valid will
The person named in a will is called a beneficiary. The beneficiary is someone who has a legal claim of a portion of the testator’s assets.
There is often a primary beneficiary. This is someone who is first to gain from an estate. Following the primary beneficiary, a secondary beneficiary is named in the event that the primary is unable to do so. Assets that remain in an estate can go to residuary beneficiaries.
Anyone can be a beneficiary of an estate. People often name close family members, spouses and children as beneficiaries. A testator can also name friends, colleagues and neighbors in their will.
Heirs benefit when there’s no valid will
When there is no valid will once the testator dies, then the person who benefits from the estate is an heir. There is typically an order for who benefits from an estate when there is no will.
This often begins with a spouse and then proceeds to children and parents. Legally adopted children often have the same inheritance rights as a biological child. Extended families, such as siblings, cousins and grandparents are considered collateral heirs.
Understanding the differences between heir and beneficiary can help testators as they discuss their estate planning options. Testators who still are confused about legal terminology may need to reach out for help.