Perhaps the terms that get conflated most often when speaking of inheritances is “heir” and “beneficiary.” Far from synonymous, the two terms are used to describe a person who stands to benefit from an inheritance. However, how the inheritance is received and whether it is received at all depends upon the individual’s position as heir or beneficiary.
An heir is someone who is an heir at law. This means that the individual stands to inherit by virtue of the laws on the books (i.e. North Carolina Intestate Succession Statutes N.C.G.S § 29A). The position as heir means that the individual is legally entitled to inherit some or all of the Decedent’s estate because of his or her relationship with the Decedent.
A Devisee is a person who has been named in a will to receive all or a portion of someone’s probate estate. Assets that pass outside of probate will not go to a Devisee, even if directed to do so in the will. A devisee is also known a s a beneficiary under the will.
A beneficiary is an umbrella term for someone who stands to benefit from an inheritance. However, it most often refers to a person named as a recipient of value on a contract, whom receives such value by virtue of the death of one party to the contract. For example, life insurance is a contract and the beneficiary receives value by virtue of the insured’s death.
Most often, beneficiary designations indicate that the asset to which the beneficiary is named avoids probate. You can name a beneficiary on just about any bank account, retirement account, investment account, or insurance product. All of these assets are contractual relationships where a beneficiary can be designated.
It is important to ensure that a beneficiary is named because assets that do not have beneficiary get paid to the estate upon the death of the owner. This means that the asset will have to go through the long, expensive, and dangerous process of probate. Probate is the opportunity for creditors, such as the nursing home or Medicaid, to come after the assets.
However, just because an asset avoids probate does not mean that it won’t be clawed back into the probate estate to pay claims of creditors. Joint accounts with right of survivorship and transferable on death accounts are both instances of assets that avoid probate but are still subject to the claw back.
A joint account with right of survivorship is where more than one party owns an account and, if one owner dies, the account goes to the other(s) still living. A transferrable on death account is one where the account holds some type of securities like stock.
If your goal is to avoid probate, you should name a beneficiary. But, you should not stop there. If we’re talking about a joint account with right of survivorship or a transferrable on death account, you may want to employ the use of a trust for protection
It is important to understand how assets will pass upon death. The last thing anyone needs after the death of a loved one is the unfortunate surprise need for probate.