Heir vs. Beneficiary: What’s the Difference?

Blog Posts

This month we’ve been sharing information about estate planning, since October is National Estate Planning Month. In this week’s blog, we look at the difference between a beneficiary and an heir.

They’re Not the Same Thing

When creating their estate plans, many people use the terms “heir” and “beneficiary” interchangeably. However, heirs and beneficiaries are not the same thing. There are subtle but important differences between them that you should be aware of as you work together with your attorney and financial advisors on drafting your estate plan.

Put simply, an heir is a family member who is related to the deceased by blood, such as a spouse, parent or child. However, just because someone is an heir doesn’t necessarily mean this person will receive assets when a family member he or she is related to by blood passes away.

A beneficiary, on the other hand, is someone who is specifically listed by name in the deceased’s will or trust as a recipient of assets when he or she dies. Beneficiaries can be people as well as organizations, such as churches or non-profits. A beneficiary may be an heir — or in other words, a blood relative — but can just as easily be a friend or favorite charity.

Dying Intestate and Probate

The term “heir” is often used when someone has died without a will, which is referred to as dying intestate. In this scenario, the probate court will usually be responsible for determining who are the rightful heirs to the decedent’s property. The probate process can be time-consuming and costly and result in hurt feelings and damaged relationships among family members.

This is one reason why most experts recommend that everyone prepare a last will and testament during their lifetime. Click here to read our blog about the importance of creating a last will and testament and how to draft one.

If someone dies intestate, his or her assets will be distributed to heirs according to state laws that dictate the order of asset distribution (e.g., spouse, adult children, etc.). It’s up to the probate court judge to determine rightful inheritance of the deceased’s property among heirs.

All Heirs Aren’t Beneficiaries

By law, heirs should receive official notification whenever a blood relative dies. But this doesn’t necessarily mean that all heirs will receive assets from the decedent’s estate. If a will has been prepared, the estate executor will use this to determine how assets will be distributed without regard to blood relationships.

For example, consider a decedent who had a strained relationship with his children. In his will, he specifies that all of his assets should be distributed to his favorite charity and a few close friends, instead of his children. Even though his children are his closest heirs, they will have no legal claim to their father’s assets if his will stipulates that the assets be distributed elsewhere.

The exception here is spousal rights. For example, suppose your father passes away and he has stipulated in his will that all his assets should pass on to you and your siblings. But he remarried 10 years ago and didn’t add your stepmother to the will. In many states, his wife will have spousal rights and be able to claim a percentage of the assets even though she isn’t listed in the will.

Contesting a Will

Any heir with a valid interest in an estate can contest (or legally question) a relative’s last will and testament. For example, heirs might believe that the signature on a will is forged, or that the deceased faced undue influence or pressure when drafting and signing the will. Contesting a will can be an expensive and time-consuming process, though, so it’s usually wise to speak with legal counsel before taking this step.

Please contact us if you have more questions about the different between heirs and beneficiaries, or about wills and estate planning in general.

 


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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