Estate planning can feel very overwhelming. There are many terms used that people may find confusing. Just looking at the list of documents that people add to their estate plans can leave people feeling stressed. The language used to describe estate plans can also confuse people.
For example, many people use the words beneficiary and heir interchangeably. However, beneficiaries and heirs are potentially completely distinct groups of individuals. What separates a beneficiary from an heir in the world of estate planning?
Heirs have a statutory right of inheritance
When talking about an individual’s heirs, what people mean are their closest family members. There are some people who generally assume that they should inherit from an estate. Spouses and children are typically the primary heirs who receive estate resources when someone dies.
Parents, siblings and other extended family members can be the heirs who inherit from an estate if someone without immediate family members dies without a will. In situations where people die without wills, their heirs inherit their property in accordance with state statutes.
Beneficiaries are chosen by the testator
People drafting estate plans are testators. They create testamentary documents explaining their wishes. Wills and trusts can designate specific people as beneficiaries who receive property from an estate or a trust funded as part of an estate plan.
Unlike heirs, beneficiaries are not necessarily people. Nonprofit businesses, churches, scholarship funds and other charitable organizations can also be beneficiaries of an estate plan. Beneficiaries do not have to have a biological or legal connection to the testator. People can select their unmarried romantic partners, close friends and other loved ones as beneficiaries.
Beneficiaries derived their right of inheritance not from state statutes but from estate planning documents. In some cases, presumptive heirs not included among estate beneficiaries may raise questions about the validity of the documents. For the most part, however, people who have created the estate plans and named their beneficiaries have control over who inherits their resources.
Establishing an estate plan is the first step toward the creation of a meaningful long-term legacy. People in many different circumstances may need to name specific beneficiaries to ensure that the right people inherit from their estate when they pass.