You want to get your estate plan in order, but you’re finding a few things confusing. What exactly is the difference between a beneficiary, a contingent beneficiary and an heir?

Does the exact word that’s used really matter? Absolutely. Before you put your plans in place, it’s wise to know more about these three terms. That way, you can make sure that your assets go where you want them to go.

Beneficiaries and heirs aren’t exactly the same thing

Most people have a muddled concept of the difference between beneficiaries and heirs because the two terms are often used interchangeably.

Your heirs are anybody that would ordinarily stand to inherit from you under the intestacy rules of succession if you have no will. They also include anybody else that you specifically designate as your heir in your final will.

Beneficiaries, by comparison, are the people who will receive an asset upon your death because you have designated them as beneficiaries on your accounts. That can include the person you designate to receive your insurance policies, the person to whom you assign a payable-on-death account and so on.

So, what’s a contingent beneficiary? That’s someone who stands next in line to receive an asset if your preferred beneficiary is unable (or unwilling) to claim the assets you’ve designated for them.

It’s wise to have a contingent beneficiary on all your payable-on-death accounts if you want to avoid probate or you simply want full control over the disposition of your assets. Otherwise, if the primary beneficiary can’t receive the funds, the money will go into your estate and be distributed to your heirs (either according to your will or according to intestate rules).

Estate planning can be a complicated process, and many people suddenly find themselves introduced to some unfamiliar terminology. The more you know about how things work, the easier it will be for you to make sure that your final affairs are in order.