What’s the Difference Between a Beneficiary and Heir?
When Barbara finally came to us a few months ago to establish her Last Will and Testament, she was eager to finally finish what she knew she’d been putting off for way too long. Naturally, naming a beneficiary was at the top of that to-do list, though she was quick to ask who qualifies as a beneficiary? Furthermore, isn’t a beneficiary another word for heir?
You’ve likely heard the terms beneficiary and heir used quite a bit during the estate planning process. You may even be like Barbara and think they are interchangeable. In reality, there are distinct differences between the two.
Beneficiary and Heir: What’s the Difference?
The biggest difference between a beneficiary and heir is that one is related to you, and the other doesn’t have to be.
An heir is someone you are related to (daughter, son, sibling, etc.) or a spouse who is legally entitled to be the recipient of your estate. Heirs can also be beneficiaries, which is likely a big reason why so many people struggle to understand the difference between the two. Plus, most people choose an heir to pass their assets and belongings to after they die.
But not all beneficiaries must be an heir. A beneficiary can be someone not related to you, such as a friend, coworker, or organization. Deciding who to name can be quite the chore for some people, but it’s also seen as a good thing since you can rest assured that your wishes will be carried out the right way by the person you ultimately choose.
To summarize the difference between a beneficiary and heir: an heir is someone who automatically claims an inheritance. A beneficiary is someone you name through a legal document to benefit from your assets when you die. And that person doesn’t have to be a relative or spouse.
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Having a plan for the future is the most important gift you can give yourself and your family. Granted, none of us will ever know for sure what is around every corner in life. And just thinking about the what-ifs — what if I were to die or become incapacitated tomorrow; what if my child with special needs has no one to care for her; what if all my “stuff” isn’t passed onto the right people — can be overwhelming. But having a plan that accounts for your family’s unique circumstances, puts your affairs in order, has concrete solutions to your concerns, lays out your wishes and goals, and protects your family’s future provides peace of mind for the road ahead.
Caitlyn Ashley Law in Denton, Texas, will counsel you on which documents are best suited for your needs and ensure they are flexible enough to meet your changing needs for years to come.