Estate planning can be an intimidating process for the average person. One reason for this is that estate planning includes concepts and legal jargon with which the average person is unfamiliar. For example, the words “beneficiaries” and “heirs” are often used interchangeably when, in fact, they are not the same thing. The Indianapolis estate planning attorneys at Frank & Kraft help you understand the relationship between your beneficiaries and heirs.
Beneficiaries and Heirs
It may sound like the answer to a logic problem on a test, but an heir may be a beneficiary but is not always a beneficiary, and vice versa. To understand the difference, you first need to understand the difference between an “inheritance” and a “bequest.” An inheritance is a broad term used to refer to assets, whether tangible or intangible, that are gifted at the time of death. An inheritance could be cash, real property, personal property, or a variety of other things. An inheritance can be in the form of a bequest in a Last Will and Testament but can also take the form of a provision in a trust. Either way, receiving gifts because you are named as a recipient in a Will or trust makes you a beneficiary.
Some people choose to use a trust as the primary method of distributing their estate. A trust is a relationship whereby property is held by one party for the benefit of another (or others). Trusts are broadly divided into living trusts and testamentary trusts with the former activating during the lifetime of the Settlor (the creator of the trust) and the latter typically being activated at the time of the Settlor’s death by a provision in the Settlor’s Will. If you are named as the beneficiary of a trust that distributes assets to you after the death of the Settlor, those assets would be considered an inheritance. That does not mean you are an heir.
If someone dies intestate, or without a Will or trust in place, the Indiana intestate succession laws determine how the decedent’s assets are distributed. In that case, only legal heirs to the estate will inherit assets. Which (if any) heirs survive the decedent determines who receives an “inheritance” as follows:
- Children but no spouse. The children inherit the entire estate
- Spouse but no descendants or parents. The spouse inherits the entire estate
- Spouse and descendants from that spouse. The spouse inherits half of your estate and your descendants inherit the remaining half.
- Spouse and at least one descendant not from that spouse. Your spouse inherits half of your intestate personal property and 1/4 of the fair market value of your real estate, minus the value of any liens or encumbrances on that real estate. Your descendants inherit everything else.
- Spouse and parents. Your spouse inherits ¾ of your estate and your parents the remaining ¼.
- Siblings but no spouse, descendants, or parents. Siblings inherit everything.
- Siblings and parents. Siblings and parents share equally, but a parent’s share must be at least ¼ of the intestate property
Inheritance vs. Bequest
A bequest is a gift made in a Last Will and Testament. That gift is an inheritance, but not all inheritances are made via a bequest. A Last Will and Testament is a legal document that is used to express an individual’s wishes regarding his/her estate assets and what should be done with them upon the Testator’s (creator of the Will) death. Bequests made in a Will may be general (such as “half my estate”) or specific (such as “my art collection”) and may be made to an unlimited number of beneficiaries. If you receive a bequest, you are a beneficiary. You may also be an heir; however, bequests can be made to non-heirs as well.
Contact an Indianapolis Estate Planning Attorney
For more information, please join us for one of our FREE seminars. If you have specific questions about your beneficiaries or heirs, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
- Understanding the Annual Exclusion - January 31, 2023
- Updated Federal Gift and Estate Tax Figures for 2023 - January 26, 2023
- Why Estate Planning Is Important for Multi-National Couples - January 24, 2023