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A legatee is an individual or an organization that receives a legacy from an estate. A legacy can be any personal property and includes objects such as jewelry, furniture or cars, and financial accounts.
The term "legatee" is often used interchangeably with "devisee," the person to whom real estate is given through a will. However, other related terms, including "heir" and "account beneficiary," have differences worth considering as you think through your estate.
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Legatee vs. beneficiary
The main difference between a legatee and a beneficiary is that all legatees are beneficiaries, but not all beneficiaries are legatees (a beneficiary can also be a devisee).
It's also important to know that you can name a beneficiary outside of a will. Specifically, you can designate a beneficiary for certain financial accounts directly with the account provider. This includes checking accounts, retirement accounts and life insurance policies.
These designations — sometimes called account beneficiaries or named beneficiaries — supersede anything stated in your will. For this reason, it's crucial to periodically review your account beneficiaries, even if you make or update your will.
For instance, consider the scenario where you are married again after divorcing. Even if your revised will names your current spouse as the legatee of a particular financial account, if your ex-spouse is still registered with the financial institution as the beneficiary, ownership will pass to the ex-spouse upon your death.
Legatee vs. devisee
Legatees and devisees are both types of beneficiaries. The main difference is that legatees refer to those receiving personal property, and devisees refer to those receiving real estate. In modern usage, the terms are often used interchangeably.
You can name any person a legatee or devisee in your will. You can also designate an organization, such as an alma mater or nonprofit.
Legatee vs. heir
The main difference between a legatee and an heir is whether the deceased had a will. If you have a will, those who receive your assets will be called legatees or beneficiaries.
If you die without a will, also called dying intestate, typically, a probate court will use state law to determine how to divide your estate among your heirs, which often include children, spouses, siblings and parents. In addition to deciding who receives your estate, intestate law determines how much to give each recipient.
Assuming that your entire estate will go to a spouse if you're married is just one example of how state law can foil your wishes if you don't put them on paper.
For instance, Michigan probate courts often award a surviving spouse the first $150,000 of their deceased spouse's estate, plus half or three-quarters of what remains, depending on whether there are surviving children or parents. In other words, in Michigan, if you don't have a will, your parents could have a legal claim to a significant portion of your estate, even if you're married.
Creating a will or trust that lists exactly what you want each legatee to receive can help avoid state-determined distributions of your assets.
How to create legatees
1. Put your wishes in writing
Making your intentions clear and in writing leaves little to chance or interpretation, and it avoids the ambiguity that comes with informally promising or assigning things to others. Moreover, in the years after you finalize your will, you can update it relatively easily as people die, as objects come in and out of your life or whenever your wishes change.
2. Communicate with family about prized possessions
Making assumptions about what others do or don't value can derail good intentions by stirring up envy, resentment or other ill feelings among those who might have expectations that don't match what's in your will. To avoid those situations as much as possible, initiate conversations now.
3. Gift before you die, when possible
Simplify your estate by bequeathing your possessions before you die. Doing this slowly and away from the high emotions that come with death can make the process easier for everyone. You can employ methods like Swedish Death Cleaning to help.
4. Add backup legatees
The term "per stirpes" explains who will get the share of your estate designated for a legatee if that legatee dies before you. In this case, it will be evenly distributed to the legatee's heirs. Per stirpes acts as a contingency if a legatee dies before you and you don't update your will.
In contrast, "per capita" means that if a legatee dies before you, their share of your estate would be divided equally among the remaining legatees you've named.
Legatee tax implications
Your estate and the estate's legatees may face taxes, depending on where everybody lives and the value of the estate or legacy. The federal estate tax ranges from rates of 18% to 40% and generally only applies to assets over $12.06 million in 2022 or $12.92 million in 2023.
Estate tax. The federal estate tax is levied on estates — not legatees. The average estate isn't affected.
Twelve states and the District of Columbia also have estate taxes. They kick in at differing levels, the lowest being Massachusetts and Oregon at $1 million.
Inheritance tax. Six states tax legatees in some situations. These states are Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. In addition, the state may tax the inheritance if the legatee resides in one of those states, regardless of where the deceased or the estate is located.
There are exemptions, including spouses and children in some cases, and, like the estate tax, the value of the inheritance usually must hit a threshold before the tax applies. There is no federal inheritance tax.