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Statue of Lady JusticeEstate planning is part of comprehensive financial planning. It includes making a will. If you don’t make a will before your death, you will die intestate. In that case, your assets will be distributed by the courts according to the laws of your state. Even though there are individual state laws concerning intestate succession, these state laws are more similar than they are different. Here’s what you need to know. Estate planning is best done by incorporating the insights of a financial advisor.

What Is Intestate in Estate Planning?

Estate planning is the process of putting together a series of legal documents that address what will happen to your assets in the event of your death. In estate planning, “intestate” means dying without a will. Your last will and testament is one of the legal documents developed when you plan your estate. A will states how your property and wealth are distributed after your death and is a part of a comprehensive estate plan.

Your will, at a minimum, states the executor of the estate, a list of your desired beneficiaries and a list of the assets you wish to go to each. The assets that you want to be distributed are both financial and physical. If you die without a will, you die intestate and then a court and judge decide on the disposal of your assets. Many erroneously believe that if you have a small estate you don’t need to make a will. If you don’t have a will, the process of settling your estate turns out to be time-consuming – even possibly chaotic. Even those with small estates can assist grieving loved ones by making it easier with a will.

Probate vs. Intestate

There is often confusion between the concept of probate and intestate. The two terms refer to two different things. Probate is the process of proving or verifying the authenticity of a will in court. It means that the will is reviewed by the court and your assets are disposed of in the manner you wished. Probate also refers to the court’s function of distributing your assets if you die intestate. Since there is no will to direct the court, the judge will distribute the decedent’s assets in a manner consistent with state law.

Intestate not only refers to dying without a will. It also refers to the situation if the court disproves a will. If the will is not approved by the court, then the decedent is also said to have died intestate.

Laws That Govern Intestate Succession

Judge in courtIntestate succession means the order in which possible heirs inherit an estate if someone dies intestate. The laws that govern intestate succession are state laws, but some information is common to most states. The intestate succession laws determine who gets your money and property. If someone dies intestate, an executor for the estate will be appointed by the court.

That executor is often the decedent’s spouse or surviving children. The executor is responsible for all bills that have been incurred before and after death, including any taxes due. A tax return has to be filed for the decedent. A benefit of going through probate is that it cuts off any claims to be made by creditors.

After an executor is appointed, an estate is thoroughly examined and the decedent’s assets and liabilities are determined. After the executor pays off all the bills, assets can be distributed to the heirs. Without a will, this may take months. If your estate is greater than $11.7 million in 2021, you have to pay federal estate tax.

There is a preference for near relatives as shown by the following general intestate succession list. This list shows the order of who will get the property and financial assets left by an intestate decedent:

  • Surviving Spouse
  • Children
  • Parents
  • Brothers and sisters and their lineal descendants
  • Grandparents and their lineal descendants
  • Next of kin
  • If there is no next of kin, the property goes to the state.

There are some special considerations when it comes to surviving spouses. A common-law spouse does not get the same consideration as a spouse from a marriage. A common-law spouse is entitled to a share of the interest in the decedent’s property with the rest going to surviving relatives. Laws concerning a domestic partner’s right to inherit vary from state to state. Some states do not recognize that relationship.

The amount of the share depends on the number of surviving relatives and their places in the succession order. If none of the relatives remain, the estate goes to the state. There are other special circumstances. Children born outside of marriage cannot inherit, in most cases, in the same manner as children born within marriage although those rules have been relaxed in recent years.

A surviving spouse and children may all inherit in some states. The children receive various portions of the estate. If you live in a state that mandates that the surviving spouse plus children and grandchildren all get a share of the state, how do you divide up the elective shares? Each state is different, but they allow two methods for determining elective shares – the per capita and per stirpes methods.

The per capita method mandates that each individual that is allowed to inherit take equal shares of the distribution of assets from the state. The per stirpes method looks at who can inherit under that state’s laws from a generational point of view. There are special rules on a state-by-state basis that govern how the estate is divided up if the heirs are from different generations.

There may also be special circumstances for adopted children, stepchildren and persons who may have done harm to a decedent and caused death.

State laws differ in how far out they will go in looking for surviving relatives. This is a general list of how far out it is possible to go in many states when looking for surviving blood relatives:

  • Children
  • Grandchildren
  • Great grandchildren
  • Parents
  • Brothers/Sisters
  • Nephews/Nieces
  • Grandnephews/grandnieces
  • Great-grandnephews/Great-grandnieces
  • Grandparents
  • Uncles/Aunts
  • First Cousins
  • First Cousins, Once-Removed
  • First Cousins, Twice-Removed
  • First Cousins, Thrice-Removed

Once this list is exhausted, the estate passes to the state.

There are some assets that an individual who dies intestate might own that do now have to go through the probate process. Those assets are those that require a beneficiary to be chosen. In this case, the payment will go straight to that beneficiary and skip the probate process.

The Bottom Line

Lawyer holding paper in courtMost people, particularly those with smaller estates, don’t realize how difficult it will be to settle their estates if they pass away intestate. They assume that everything will go to their surviving spouse or partner or to their surviving children. Settling their estate may be more complicated than that based on the rules of intestate succession and their state laws.

Tips on Estate Planning

Photo credit: ©iStock.com/BrianAJackson, ©iStock.com/RichLegg, ©iStock.com/Chris Ryan

Rosemary Carlson
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