When it comes to our to do lists, most people have pencilled in "make a will" or "make an estate plan" right at the very bottom.
For heaven's sake, who wants to think about dying? Not me, and I'm an estate planning attorney. The trouble is that too many people never get around to estate planning, which leaves a lot up to chance.
But what happens if you die without a will or other estate planning? As with almost everything a lawyer says, "it depends."
When it comes to our assets, some are governed by federal law while others are governed by state law. In general, assets that are governed by federal law, such as an IRA or a 401(k), include beneficiary designations that allow us to designate who will be entitled to those assets after we pass on, without the need for a will or probate. In contrast, assets that are governed by state law, such as real estate, jewelry, art, etc., don't generally include beneficiary designations and those assets become part of our probate estate.
Assets that are part of our probate estate are subject to terms of a valid will, if you have one, or the intestacy laws of the state where you live when you pass, if you don't have a valid will. In other words, if you don't have a valid will, state law determines what will happen to the assets in your probate estate, without any input from you about what you want.
Although intestacy laws vary from state to state, they typically provide that your assets will go first to your surviving spouse. If your spouse does not survive you, then your assets go to your natural-born or adopted children equally -- notice that I did not say stepchildren. For many people, such an arrangement is what they would want even if they had a will; however, for a growing number of Americans, such a disposition is far from what they want.
Take for example a blended family in Arizona, where I live. Prior to the current marriage, one spouse had two daughters and the other spouse had two sons. If the first spouse dies without a will, half of the decedent's separate property would go to the children of the decedent and everything else, including any community property, would go to the surviving spouse. If the the surviving spouse also dies without a will, then all of the surviving spouse's probate estate goes to the surviving spouse's children. In other words, the children of the first spouse to die are almost disinherited, albeit unintentionally, because the couple let the state write their wills for them.
In the alternative, if the couple had wills, they could have included provisions that would have created a trust for the children of the first spouse to die, which would have allowed the surviving spouse to use the couple's assets while living, but would have better ensured a fair and equal distribution to all of the children after the death of the surviving spouse.
State intestacy laws are a "best guess" as to what the average person wants to happen to their property when they die. Don't leave such an important decision about your legacy up to the state's "best guess."
Steve Cook is an estate planning attorney at Cook & Cook in Phoenix, AZ.
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