In a prior post, “6 Potential Problems With Dying Intestate,” we discussed the downsides of dying without an estate plan, including extra costs for heirs, more likely litigation, and the distribution of your estate to people you might not choose. Studies have shown that these costs fall on those least able to afford it, exacerbating the problems in inequality in the United States.
One Florida County
Danaya C. Wright, a professor at the University of Florida Levin College of Law, sought to examine the effects of intestacy by studying all the probate cases in a single Florida county — Alachua County — during a single calendar year — 2013. She acknowledges that her findings can only be suggestive due to the size of the sample — 408 estates — and the fact that it does not provide information on non-probate property passing through joint ownership, beneficiary designation or trust. But those suggestions, found in her article, “The Demographics of Intergenerational Transmission of Wealth: An Empirical Study of Testacy and Intestacy on Family Property (88 UMKC L. Rev. 665),” are very interesting. She finds that “on average, intestate decedents were more likely to be younger, married, and poorer than their testate counterparts, meaning provisions for children were less likely to be be well-planned. That lack of planning contributes to the growing wealth gap between persons of different races, sexes, and classes and is easily perpetuated from generation to generation.”
In Professor Wright’s sample, the median testate estates — those with wills — were valued at $67,000 and the intestate estates at $17,400. All the smallest estates were intestate and all the largest ones were testate. Looking at just those estates containing real estate, the average non-real estate assets totaled $121,022 for those with wills and $41,623 for those without wills. Interestingly, among these estates containing real estate, a third of those with wills used a will substitute to transfer the home whereas only one of 26 intestate estates did so. A will substitute could be joint ownership, a life estate or a trust, that can avoid probate and many of the other problems with intestacy described above. This also indicates that those with wills did more extensive planning than simply executing a will.
Those who died with wills were older than those without, a median age of 84 as compared to age 65. Many of those who did not have wills and were under age 65 died from accidental causes. Professor Wright comments that while this is not a surprise, the “problems of intestacy are likely to fall on a younger population, a population perhaps more likely to have minor children and less wealth.”
Adverse Effect on Wealth Creation by African Americans
The study found that residents of color were more likely to die intestate than those who were white, though women of all races were more likely to have wills than men, perhaps because they were more likely to live longer. A husband and wife may not execute wills, assuming that everything will pass to the other through joint ownership, with the survivor creating an estate plan when they are widowed.
While 61% of the population in the county is white, 93% of the decedents with wills were white. At the same time, while the Blacks make up 20% of the county’s population, 32% of the decedents without wills were Black. However, the study found that the wealth gap between white and Black decedents was not as great as has been reported nationally. This may reflect the relatively small size of the sample which could have been skewed by the fact that one of the Black decedents was quite well off.
There’s evidence that some of these issues — the ability to partition property, loss to tax sales, and the costs of split ownership — have contributed to the loss of family farms and homesteads owned by African American families. (Professor Wright also notes that one of the potential problems with intestacy, litigation over who should serve as personal representative, did not occur in her sample, with both testate and intestate estates proceeding relatively smoothly.)
In another law review articles based on the same data, “Disrupting the Wealth Gap Cycles: An Empirical Study of Testacy and Wealth” (1019 Wis. L. Rev. 295), Professor Wright adds some additional insights. One is that the failure to probate estates resulting in confused ownership of real estate has made it difficult in some cases for heirs to obtain mortgages, FEMA assistance in the event of natural disasters and homeowners insurance. The harmful results often exacerbate existing racial inequity. “To the extent intestacy creates barriers to inter-generational transfers of wealth, we should be concerned if, as is the case, black and Latino decedents are far more likely to die intestate than white decedents.”
Professor Wright explains that the pattern of wealthier and older people being more likely to engage in estate planning can exacerbate inequality to the extent estate planning can preserve wealth and failure to plan can carve away at it. In terms of how this pattern affects racial inequality, “black intestate decedents have the highest amount of wealth in the 45-54 age group while black testate decedents have the highest in the 75-84 age group. This thirty-year gap between intestacy and testacy confirms that the younger a decedent is at death, the less wealth he was likely to have. Intestate black decedents had some of the lowest wealth in those critical early retirement years from ages 55-85.”
Interestingly, while men who were married when they died had the largest estates, married women had the smallest. This would indicate that married men were more likely to keep assets in their own names, which is why they went through probate upon their deaths, while married women kept their assets in joint names or other means to avoid probate.
In “How Should Inheritance Law Remediate Inequality” (97 Wash. L. Rev. 61), Felix B. Chang, a professor at the University of Cincinnati College of Law, argues that trusts and estates “should prioritize intergenerational economic mobility.” He describes the current system as “bimodal:” “On one hand, trusts and nonprobate instruments cater to the privacy desire and dynastic aspirations of the hyperwealthy. On the other hand, intestacy and the probate system serve low-income households terribly, throwing intrafamilial conflicts into public view. This schism, between probate and nonprobate, reinforces the unequal distribution of incomes and family compositions across society.” He points out that lower-income Americans are less likely to marry than wealthier ones, which not only makes it harder to build up savings while their alive, but makes it more likely that their estates will face the higher costs of probate when they die since they’re less likely to own assets in joint names or to have named beneficiaries to accounts.
Further, the intestacy rules that favor spouses and blood relatives may completely ignore nontraditional relationships and close ties that are not related by blood. An article in The Boston Globe a few yeas ago described the case of a family that lived together for decades. Ultimately, when the patriarch died, the house passed to his distant relatives in the Barbados because he had not made a will that would have given the house to his stepchildren who had cared for him in his final years. In this case, the older generation was married, but marriage rates are declining among lower-income Americans, including those who become parents, rendering the intestacy rules that favor traditional family arrangements increasingly out-of-date.
The lack of wills among American adults is problematic not only due to the problems discussed above but because it reflects a lack of estate planning in general. Durable powers of attorney and health care proxies can be as important as wills and as unlikely to have been executed. People often use will substitutes — joint ownership and beneficiary designations — to avoid probate, but if these are not part of an overall plan, they can lead to complications as well. For instance, people often neglect to update these when a beneficiary dies or they get divorced or enter into a new romantic relationship.
So, what can we do to encourage estate planning, especially by people who are younger, have less wealth and may be less comfortable working with lawyers? Here are some possible steps lawyers and legislators can take:
- On-line estate planning can be a great solution for many people. While on-line programs will not answer questions individuals may have or respond to more complex situations, they are certainly far better than no plan at all.
- Law firms could expand their pro bono services. How about clinics where anyone can show up to do their estate planning on the spot? This wouldn’t work for more complex situations, but could be of great assistance for more straightforward plans.
- Intestacy rules could be revised to better reflect people’s wishes.
- State laws could also make it easier to execute an estate plan. Why, for instance, is it so much easier to execute a beneficiary designation for a retirement plan or investment account than to execute a will? Could states have a simple on-line form that any resident could fill out saying how to divide their estate and naming their personal representative? This could present problems of authenticating the individual and determining their capacity and freedom from undue influence, but creative people should be able to find solutions to these challenges.
- One solution that could help limit the problem of too many owners of property is to change the default for succession from tenants in common to joint tenants. If all the members of a generation own property as tenants in common, when they die their shares pass to their estates to be divvied up among their children. If they own the property as joint tenants, upon death the property passes to the surviving joint owner. This would means that it would ultimately it will pass to the children of the member of children’s generation who lives longest, which may not seem fair, but it avoids the problems described above when there are too many owners.
- Diane J. Klein, a professor at the La Verne College of Law in California, suggests in her article, “Knocking on Heaven’s Door: Closing the Racial Estate-Planning Gap by Ending the Ban on Live Person-to-Person Solicitation” (44 J. Legal Prof. 3), that the bar on attorneys soliciting business in person should be relaxed in the realm of estate planning. She argues that the ethics rules for lawyers designed to protect potential litigants, such as accident victims, from being solicited when they are in a vulnerable state, do not apply to those prospective clients who might plan their estates. She argues that door-to-door solicitation may be the best way to reach populations who may be reluctant to seek out an attorney due to lack of understanding of the legal process, language barriers, or fear of lawyers. “Despite the inclusion in the Model Rules of a requirement of nondiscrimination in the practice of law,” she says, the profession is not doing all it can to ameliorate the racial estate planning gap.” She acknowledges that permitting in-person solicitation will not by itself solve the problem, but argues that it is a “concrete step” in the right direction.
Currently, estate planning helps those with wealth preserve it and undermines the wealth accumulation of families with fewer resources. We should work to correct this situation.