Beneficiary. Heir. Synonyms.
At least that’s how most people think about these two words.
But they’re not interchangeable. At least, not when doing estate planning. Get this one wrong and it could cause serious problems for loved ones — and for charitable causes they care about.
What’s Inside:
- Beneficiary vs. Heir — What’s the Difference?
- Why You Should Care
- What Is a Charitable Bequest?
- How to (Legally) Include the Right People (and Charities) in Your Will
- Mistakes to Avoid
Beneficiary vs. Heir — What’s the Difference?
Beneficiary and heir are two terms thrown around a lot when discussing estate planning. They sound similar, and they’re related. But they’re not the same thing.
An heir is a person who’s entitled to inherit from an estate under the law. Heirs are what someone has if they don’t leave a will.
When someone dies without a will they’re said to have died “intestate.” Intestacy means that the law defines who gets what from the estate. If someone dies without a will their assets are distributed to their heirs according to a pre-determined formula. Common heirs include a spouse, children, or other family members. Someone cannot be named as an heir in a will — they’re simply named by the law.
A beneficiary is the person (or people) named in a will to receive assets. That could be an heir, like a child. But it could also be a friend, or a charitable organisation.
Beneficiaries are chosen. Heirs are assigned by operation of law.
Here’s a simple way to think about it:
- Heirs = who gets the estate if someone DIES WITHOUT A WILL
- Beneficiaries = who is named in THE WILL
There are beneficiaries because a will was written. Someone who dies without a will has heirs… but not beneficiaries.
Why Should You Care?
If someone dies without a will their estate will go to their heirs according to a formula set out by state law. If the intention is for someone else to receive assets — or for a charity to benefit — they need to be named in a will.
Here’s what can happen when someone dies without naming a beneficiary.
Brian and Francine live together in Adelaide. They’ve never been married, but have been partners for 30 years. Brian dies without a will, leaving all of his assets to be distributed to his heirs intestate.
Under South Australian law, his long-time partner receives nothing. His sister inherits everything.
Except, Brian always intended his property to go to Francine. She was his next of kin. Surely the law takes common sense scenarios like this into account?
It should. But it doesn’t.
Here’s another example.
A woman named Sharon passed away recently. She was well-known in her community for her generous support of the local animal shelter. She baked cookies for fundraising events, solicited donations, and did whatever was asked of her. But Sharon died without a will, and her house went to her only heir: her son.
The animal shelter received nothing. Her son wasn’t exactly thrilled to inherit the family dog, either.
To be fair, he’s now in the process of changing that. But it shouldn’t have been left up to him.
If you’re wondering “how likely is this to happen to me?” — the answer: more often than you’d think.
52% of Australians die without a will. That’s more than half the country leaving it up to chance who inherits their estate. Half.
Those who do write a will take steps to convert their wishes into a legally-binding document — including who to name as beneficiaries, and whether to leave any charitable bequests.
What Is a Charitable Bequest?
A charitable bequest (also known simply as a “bequest”) is a gift left to a charity through a will.
There are three main types:
- A specific bequest — such as a fixed dollar amount, or a specifically named item like a car
- A residual bequest — a percentage (or all remaining assets) once specific gifts have been distributed
- A contingent bequest — something that’s only gifted if certain conditions are met
Like charitable donations during a lifetime, bequests are an incredible gift that can help nonprofit organisations do incredible work.
Only 6.5% of wills in Australia include a gift to charity — compared to nearly 13.7% in the United Kingdom, and 10% in the United States. That means only about 1 in 15 wills leave any gift to charity at all.
Gifts to charity are an amazing way to leave a legacy that matches personal values. While they’re still underutilised in Australia, there has never been a better time to include a charity in a will.
Making Your Wishes a Legal Reality
Knowing the difference between a beneficiary and an heir is important. But what to do with that information?
If control over who gets what matters, a will is essential. To make a will in Australia is a straightforward process — but one many people put off for years, only to regret it when it’s too late.
At minimum, a will should:
- Name beneficiaries who will inherit specific portions of the estate
- Include language that spells out how assets are to be divided
- Name a trustworthy executor to manage distribution of the estate
- Clearly word a charitable bequest to a chosen nonprofit (if that’s the wish)
- Include a backup plan in case a named beneficiary dies first
When it comes to including a charity in a will, specificity is key. Many well-intentioned mistakes come down to poor wording. If there’s any doubt about whether a charitable organisation will receive a gift, there’s a good chance they won’t.
Avoiding the Most Common Mistakes
There are a handful of mistakes that come up again and again — both when writing a will and when considering leaving a gift to charity.
Assuming a spouse or children are automatically included.
Just because someone is married doesn’t mean their spouse is automatically entitled to everything. Get that wrong and a partner could be cut out of the will by mistake.
Failing to update the will after major life events.
Life happens. Once a will is written, it’s important to revisit it after major events — birth of a child, death of a named beneficiary, a divorce. A will should always reflect the current situation.
Forgetting to leave a gift to charity.
Many people pass away each year with the good intention of leaving a gift to charity — but never actually writing it down. That’s not a legally-binding gift.
Being vague about wishes.
“I want my favourite charity to get some of my stuff” is not a legally valid bequest. The charity (or charities) needs to be named specifically. Ideally, so does the amount or percentage of the estate they’ll receive.
Writing a will can be simple. But it requires taking action.
The Bottom Line
Beneficiaries aren’t heirs. And heirs aren’t automatically beneficiaries.
The difference? A will. Writing a will means specifying beneficiaries to receive assets — including charities.