The terms heirs and beneficiaries are interchangeable, right? Not necessarily when it comes to distributing your property after death. So, knowing the difference between the two is essential in estate planning.
THE DEFINITION OF HEIRS
An heir is a legally identified person who’s entitled to receive your estate property when no will or trust dictates distribution. In that case, state law dictates how an estate is distributed and which heirs are entitled to assets.
Generally your heirs, in succession order are:
- Your spouse
- Your children
- Your parents
- Your siblings
- Your grandparents
- Your next of kin. If no next of kin, your property would revert back to the state.
BENEFICIARIES DEFINED
A beneficiary is a person you’ve specifically named to receive proceeds and assets from:
- Life insurance,
- Employer-provided qualified retirement plans,
- Individual retirement accounts,
- Trusts, and
- Annuities, as well as property distributed under your will.
A beneficiary may or may not be an heir and vice versa. Understanding a beneficiary’s role in your estate plan and their rights to your assets or property is a key element in planning. If you don’t name beneficiaries with a will or other planning tools, they’ll be chosen for you.