Understanding important estate planning terms is crucial when you are planning your estate. Although the terms “beneficiary” and “heir” are frequently used interchangeable by the general public, the terms actually have two very different legal meanings in most states. Both may be applicable to your estate planning purposes, making a complete understanding of the legal meanings important.

Individual states are responsible for laws, rules and regulations regarding wills and trusts, and other estate matters. Having said that, there are some common concepts, procedures and terminology used by most states.

In most jurisdictions, the word “beneficiary” refers to someone who is specifically mentioned in a Last Will and Testament or in a trust as receiving a gift. For example, if you specifically mention that you wish to give your daughter a gift of $10,000 under the terms of your Will, then your daughter is a beneficiary under the terms of the Will. If you mention that you wish to give your Secretary your vehicle under the terms of your Will, then he or she is also a beneficiary in your Will.

An heir, is someone who will inherit from your estate under the laws of intestate succession in your state. Intestate succession refers to a situation wherein you died without leaving a valid Will. An heir will also inherit any assets that are not specifically bequeathed to beneficiaries under a valid Will. Although state laws will vary, heirs are typically your spouse, children and other blood relatives. The way in which your state will be divided amongst heirs will also vary among states; however, your spouse, children and grandchildren of any deceased children typically inherit first.

A beneficiary may also be an heir and the other way around. For example, the gift of $10,000 to your daughter makes her both and heir and a beneficiary since children are considered heirs under all state laws.