The terms heir and beneficiary are used interchangeably when creating estate plans. However, these two have differences. Understanding the differences between the two terms eliminates complications and confusion that would be created if these two are wrongly used in estate planning. So, what’s the difference between heir and beneficiary?
What is Heir?
An heir is a person entitled to receive money from a deceased person based on the default state succession rules. Most heirs are surviving blood relatives and spouses. In most cases, the term heir comes into play when a person dies without a will.
According to the provisions of most laws, children automatically become heirs if their parents die. Other close relatives can also be listed as heirs if there was no will. However, a spouse is typically first in line followed by the children. Although rare, all heirs may be deceased. In this instance, the estate pass to the state in a process called escheatment.
Also, the amount that each person gets is determined by the governing laws in a territory. This also ensures that assets of the estate pass to only people who are legally entitled.
An heir cannot be an unmarried partner regardless of the length of the relationship. Also, step-children, legally divorced spouses, friends, a charity or foster children are not considered as heirs.
What is Beneficiary?
This is an individual who is listed in a trust, insurance policy or will to receive assets from another entity. A beneficiary can be an organization, a family member, a friend, step-children, a partner, a pet or even a charity. Heirs can be omitted from being a beneficiary in a trust, will or insurance policy.
Although heirs can be beneficiaries, it’s not always a guarantee that they will get the rightful inheritance. For instance, if a parent leaves their estates for their life partners, the children are not entitled to the inheritance.
Most beneficiary successions are often passed through beneficiary designations such as credit unions, insurance companies, banks as well as other financial institutions.
Similarities between Heir and Beneficiary
- Both benefit from other parties’ estates
Differences between Heir and Beneficiary
Definition
An heir is a person entitled to receive money from a deceased person based on the default state succession rules. On the other hand, a beneficiary is an individual who is listed in a trust, insurance policy or will to receive assets from another entity.
Provisions
An heir is a surviving blood relative or spouse and cannot be step-children, legally divorced spouses, friends, a charity or foster children. On the other hand, a beneficiary can be an organization, a family member, a friend, step-children, a partner, a pet or even a charity.
Heir vs. Beneficiary: Comparison Table
Summary of Heir vs. Beneficiary
An heir is a person entitled to receive money from a deceased person based on the default state succession rules. An heir can only be a surviving blood relative or a spouse. On the other hand, a beneficiary is an individual who is listed in a trust, insurance policy or will to receive assets from another entity. They can be an organization, a family member, a friend, step-children, a partner, a pet or even a charity.
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