You’ve heard the adage: Those who fail to plan, plan to fail. Never is that more true than with estate planning.
When you create an estate plan, you choose exactly who gets your assets, how they get them and in what manner you will pass those assets to your loved ones. An estate plan often consists of one or more of the following to achieve your desired planning goals: a Will, a Revocable Trust and/or Beneficiary Designations.
Without an estate plan, when you die your estate goes into “intestacy.” When you die “intestate,” your state’s laws determine who inherits your assets.
In every case, these will be your nearest relatives (as defined by your state), however remote or uninvolved in your life they may be. As you may imagine, this may produce some undesired results.
In New York, where I live, the rules of intestacy work like this:
- If I was married but have no children, my spouse inherits everything.
- If I was married with children, my spouse inherits half of my estate and my children split the other half in equal shares.
- If I was single or widowed, my children, in equal shares, inherit everything.
- If I had parents but no spouse or children, my parents, in equal shares, inherit everything.
- If I had no spouse, parents or children, then my siblings, in equal shares, inherit everything.
There are other rules as well:
- Adopted children will inherit just like biological children.
- Foster children and stepchildren do not inherit unless they were legally adopted.
- Children born outside of marriage are descendants if the deceased’s paternity was legally proven and established.
- Children conceived during a decedent’s lifetime but born after his or her date of death are considered descendants.
- Foster children and stepchildren are not descendants unless they have been legally adopted.
- Half-siblings are treated just like full siblings.
Other states have similar rules.
While these rules work in some cases, they are far from ideal. Let’s say you are single with no children, both of your parents are living, but you are estranged from your father. If you die without a Will, your father, whom you may have not seen in decades, will inherit one-half of your estate. On the other hand, if you are married with two children, your spouse will inherit only one-half of your estate, with the remaining half passing to your children. This may not please your spouse, especially if he or she must raise those children with limited access to their inheritance. Intestacy may not be the best option for your children either. The court will direct who will manage their inheritance and then pay it to your children when they reach age 18, regardless of their level of maturity.
The foregoing are only a few examples where the laws of intestacy may go against your desire for a smooth transition of your assets upon your death. If you want your assets to pass to whom you want, when you want and how you want, then plan your estate – don’t let the state plan it for you.