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A couple consults a lawyer about their willFinancial planning means giving thought to how you want to manage your investments and other assets during your lifetime. But it also means taking a longer view and considering what will happen to your assets after you’re gone. That includes creating an estate plan, which often involves a last will and testament. Dying intestate means that you’ve passed away without drawing up a will, which is something that can have serious consequences for your estate. If you’re still putting together your financial and estate plan, here’s more on what intestacy means and how it can affect your loved ones.

Intestate, Defined

Intestate sounds like a complicated term but it has a very simple meaning: dying without a legal will in place. Alternately, intestacy can happen when a will exists but it’s declared invalid by the probate court.

Every state has different laws regarding what’s considered a legal will. For example, some states may allow video wills while others may not. Or there may be different laws regarding who can act as a witness to a will and the number of witnesses required to make it legally valid.

How Intestacy Works

If you pass away without a will, there’s a legal process that takes place to determine how your assets are handled. The probate court will appoint an administrator or executor to oversee your estate and this role involves several important steps.

First, the executor is responsible for creating a detailed inventory of your assets and their value. Next, they must determine what outstanding debts are owed by your estate. It’s the executor’s job to make sure any remaining debts are paid. This can be done by liquidating or selling assets from your estate.

Once your estate’s debts are paid, the executor or administrator distributes any remaining assets to your heirs. This is done according to the inheritance laws in your state and it’s the administrator’s job to track down any and all heirs who may be legally entitled to part of your estate.

How Assets Are Distributed When You’re Intestate

When there’s no will or estate plan in place, asset distribution follows the order of intestate succession laid down in state law. The Uniform Probate Code serves as a guide for state laws and it includes some specific rules for determining how assets should be divvied up among heirs.

For example, under the code:

  • Close relatives take precedence over distant relatives.
  • Adopted descendants are treated the same as blood descendants.
  • Parties entitled to receive property or assets include spouses, children, grandchildren, parents, siblings, aunts, uncles, nieces, nephews and cousins.
  • Surviving spouses take precedence over other parties, including children of the deceased.
  • If there’s no surviving spouse, assets are distributed first to children or grandchildren, then parents, then other remaining relatives.
  • Friends, non-relatives and charities are not entitled to receive anything from your estate if you die intestate.

It’s worth noting that when there are no heirs to be found, all of the deceased person’s assets revert to the state. At that point, it’s up to the state to decide what to do with them.

Risks of Dying Intestate

The biggest risk of passing away without a legally valid will in place is that your wishes won’t be carried out with regard to your estate. For example, if you wanted each of your children to receive a specific share of your assets then you’d need to spell that out in a will. Otherwise, your spouse would likely receive most or all of the assets from your estate when you die.

That may not be an issue if you trust your spouse to divide those assets among your children according to your wishes. But if you want to have certainty that things will be divided the way you want, then having a will in place would be necessary.

Dying intestate also means you can’t prevent people from receiving assets from your estate. While you can’t use a will to legally deny a spouse their share of your assets, you could use a will to exclude other family members, including parents, siblings and adult children. If you specifically do not want any of those individuals to receive assets from your estate, you’d need a will in place. Otherwise, they could be entitled to something after you pass away under your state’s inheritance laws.

Another good reason for drafting a will is to name a legal guardian for your children. Without a will in place specifying who you’d like to care for your children if you (and your spouse) pass away. If you don’t have a will outlining who should care for your kids then it’s left to the state to appoint a legal guardian for them.

How to Avoid Intestacy

The easiest way to avoid dying intestate is to draft a legally valid will according to the laws in your state. Depending on how complex your estate is, you may want to work with an estate planning attorney to create your will document. But if you have a simpler estate, you could create a will online.

Again, every state has its own laws regarding what is a legal will and what isn’t. But generally, to be legal a will needs to meet these guidelines:

  • The person creating the will must be of legal adult age.
  • That person must have the intent to create a will.
  • They must also have testamentary capacity, which means being of sound mind.
  • The will can’t be created under duress.
  • It must spell out how the person wants their property and assets distributed.
  • The will must be signed and witnessed by the required number of witnesses.

With regard to witnesses, they typically must meet some of the same requirements as the testator, that is what the person making the will is called. For example, they’ll need to be legal adults and of sound mind. State laws typically prevent anyone from witnessing a will who has a financial interest in it. So if you’re leaving your baseball card collection to your brother, for example, you couldn’t ask him to witness your will.

Some states require you to file a copy of your will with the probate court or office. Again, an estate planning attorney can advise you on what you need to be done to make sure your will is valid. And it’s also a good idea to make multiple copies and keep one in a secure place, such as a safe deposit box at your bank.

The Bottom Line

Being intestate can create problems for your loved ones after you pass away. The state can and will step in to manage your assets according to inheritance laws. You can avoid this situation by taking steps to create a legally valid will.

Tips for Investing

  • Consider talking to a financial advisor about putting together an estate plan that takes care of your family. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • Investment accounts and life insurance policies that have a named beneficiary wouldn’t be included in a will. Those assets would be passed on to the person you’ve named as a beneficiary. It’s important to review your beneficiary choices regularly and update them when a major life change, such as a marriage or divorce, occurs.

Photo credit: ©iStock.com/FatCamera, ©iStock.com/PeopleImages, ©iStock.com/simpson33

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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