When an individual passes, they leave behind their estate and parties who will have a pecuniary interest in the estate. Interested parties include beneficiaries, heirs and creditors. Creditors are easy to distinguish because they are the persons or entities to whom the decedent owes money. While we often use the terms beneficiaries and heirs interchangeably, they are not the same.
How are heirs and beneficiaries different?
Heirs are the individuals who can legally inherit an estate even if the estate owner died without a will. They have a right to the estate because of their marital, familial or blood relationship with the owner. In Arizona, heirs have a claim to the property of the decedent under the statutes of intestate succession. Heirs include:
- The surviving spouse
- Biological and adopted children
If an estate owner dies without a will and has no direct relatives, the closest heir could be a distant relative. Heirs can be beneficiaries, but not automatically. A beneficiary is an individual or entity who receives a right to the estate through a legal instrument. An estate owner must designate a beneficiary, and they can do so using the following estate planning tools:
- Insurance or annuity policy
- Payable-on-death (POD) designation
- Transfer-on-death (TOD) designation
- Transfer-on-death (TOD) deeds
- Retirement accounts
Beneficiaries need not be people; you can designate an organization such as a church or charity. A Beneficiary designation can help heirs bypass the probate process, although that often requires more than a simple will.
You choose your beneficiaries
The estate owner chooses their beneficiaries, but they cannot choose their heirs. By designating beneficiaries, you can directly transfer your property to the people who mean the most to you and ensure they receive what you intended.