If you die without a will, the government has a plan for you. These statutes are known as the rules “intestacy” and not having a will as dying “intestate.” Increasingly, studies show the costs of dying intestate to one’s estate and heirs and how those costs fall on those least able to afford them.
How Intestacy Works
Under the rules of intestacy, your estate passes to your closest heirs, but the rules can differ from state to state. In Massachusetts, for example, if you are married when you pass away, your spouse will receive your entire estate if you have no children or grandchildren or if all your children and grandchildren are also children and grandchildren of your spouse. At least that’s how it works if you have no surviving parents. If one or both of your parents survives you, your spouse will receive the first $200,000 plus 75% of the rest.
If, however, your spouse has children or grandchildren who are not also your children or grandchildren, then your spouse only receives the first $100,000 of your estate and half of the rest of your estate. This is also the case if you have children or grandchildren who are not also children or grandchildren of your surviving spouse.
In the cases where your spouse doesn’t receive your whole estate, the rest is split among your parents, if they survive you, or your children, the share of any child who does not survive you going to their children (your grandchildren).
Is that clear? Kurt R. Nilson, an attorney in Johnstown, Pennsylvania, maintains a website, heirbase.com, that explains the intestacy rules in every state, including an “evaluator” that calculates the share of the estate to be received by each heir.
In addition to the rules being very complicated, intestacy presents these other potential problems:
1. The Distribution of Your Estate is Not What You Would Want
The intestacy rules seek to distribute assets as most people would choose if they had written a will. But many people would choose a different outcome. According to a survey of 9,000 Americans by Yale Law School professors Yair Listokin and John Morley, most respondents would give less to their spouses than prescribed under the intestacy rules and more to their partners, who receive nothing under the intestacy rules. Married respondents with shared children on average would give 52% of their estates to their surviving spouses, rather than the 100% they would receive under intestacy rules. Unmarried respondents without children would give their partners on average 43% of their estates.
Their survey further found that respondents were generally less generous to their parents and more generous to siblings and stepchildren than would be the results under the rules of intestacy. In general, the intestacy rules follow the bloodlines, favoring those mostly closely related to the decedent, whereas most people would favor those to whom they feel most connected regardless of familial relationship.
An article in The Wall Street Journal, “The Confusing Fallout of Dying Without a Will,” highlights the problem with dying intestate if your family relationships are not traditional. It tells the story of a man who’s partner of 18 years died without an estate plan who had to buy out her share of their home from her children, which was a financial strain for him. That may or may not have been her wish, but they had never planned for that possibility. If they had planned they each could have left their shares of the house in trust for one another to pass to their children only when both had died. Or they could have purchased life insurance to finance the house purchase.
2. The Wrong Person in Charge
In your will you can name your personal representative (also known as an “executor” or “executrix”), making sure it’s the person you think can best carry out this role. If you don’t choose, the person who steps in may not be the best at this role. It may be the person who is the most bossy rather than the one who is most fair for efficient.
Or there may be extra cost and delay if no one steps up or your heirs can’t agree on who should serve.
3. Litigation More Likely
Studies have found that intestate estates are more likely to end up in litigation than estates with wills as heirs fight over property or over who’s in charge.
4. Minors or People with Disabilities Inheriting
Another potential problem with dying intestate is that your minor children or grandchildren could inherit a part of your estate. While they are young, their parents or guardians will control their funds, which in most cases works out fine. But these may not be the people you would choose for this role. Further, your children or grandchildren would gain control of their inheritance when they reach age 18, an age when they may not be ready to handle receiving significant funds or having the funds in their names could interfere with their receipt of public benefits or financial aid for college. Leaving their shares of your estate in trust would protect against these possibilities.
If someone with a disability inherits, they may lose their vital public benefits, mismanage the funds or become the victim of predators. Planning with a special needs trust can protect against this possibility.
5. Too Many Beneficiaries
A further problem that can arise from relying on the intestacy rules is that your estate may be split in too many parts to be manageable. I recently received an inquiry on my AskHarry.info site from a man whose cousin died without a will. She had no siblings, so her estate was going to be split among more than 30 cousins, many of whom live in Russian and Ukraine. The estate had to hire an heir search firm to find them at extra cost (and the man seeking my advice suspected that fraud was involved and that not all the people claiming to be heirs really were).
6. Special Problems with Real Estate
The difficulties multiple heirs can present with respect to real estate may be compounded when many generations die without wills or probating their estates. Any house that’s inherited by several people may have to be sold for everyone to receive their share. Or one owner can force a sell through a legal process known as “partition” even though the others want to keep the property in the family. Or it may not be clear who’s responsible for paying taxes and the house can be lost to a tax sale.
Even when the family is in agreement about keeping a home, if they never probated either the original owner’s estate or that of subsequent generations, there can be considerable cost at that time when they must clean up the property’s title. For instance, let’s say the grandparents have four children, three of whom have passed away leaving nine grandchildren, two of whom have also passed away. Before selling the house, it may be necessary to probate the estate of the grandparent who died last, those of the three children who have passed away, and those of the two grandchildren who have died.
Further, it may be necessary to obtain the consent of the one surviving child, the seven surviving grandchildren, and perhaps the surviving spouses or children of the deceased grandchildren. Some of these individuals may have lost contact with the family and be difficult to find and others may be minors, requiring that guardians be appointed to assent to the sale on their behalf. All of this is expensive and time consuming.
Conclusion
To avoid these potential pitfalls of dying intestate, create a will. In some cases, it also makes sense to create a trust. The problem, of course, is that many people shy away from doing estate planning for many reasons — they feel they’re too young, they don’t have enough to plan for, legal fees are too high, they can’t decide, they’re too busy, etc. In a future post we will discuss both how the costs of intestacy fall most on those least able to afford them and possible solutions to make it easier for people to do estate planning and to reduce the costs of dying intestate.
