Dying without an estate plan often results in unintended consequences. Instead of family members deciding how your estate will be distributed, a default plan will be created for you under state intestacy laws. For certain individuals, including ones with unmarried partners, minor children, blended families, disabled children and irresponsible loved ones, dying intestate can be particularly problematic.
Many people assume that when they die without an estate plan, their family members will decide how the estate is distributed. This belief is false. If you do not take the time to create an estate plan, one will be created for you under your state's intestacy laws.
State intestacy laws are strictly applied to everyone who dies without an estate plan; no exceptions are made. It is essentially a default, one-size-fits-all plan that is based on the traditional American family. Under most states' intestacy laws, your property is distributed in the following order:
- Surviving spouse
- Children
- Parents
- Siblings
You should speak to an estate planning professional to understand the intestacy laws of your state.
The framework does not take into account the unique circumstances of your life and family. For many individuals, the default plan is not a good fit and has unintended ramifications. Below are scenarios where intestacy is particularly problematic.
What if you have an unmarried partner and die without an estate plan?
The number of cohabitating individuals living in the United States is continually rising, many with no intention of ever getting married. However, unmarried partners are not entitled to anything when you die without an estate plan. It does not matter how long you were cohabitating if the relationship is not legally recognized.
Under most state intestacy laws, if you die without a spouse and children, your property passes to your parents. The only exception would be if your unmarried partner was a joint owner of the property or a named beneficiary on an asset. If you want your unmarried partner to receive your property, you must make a concerted effort to create an estate plan that expresses this intent, or they could be left with nothing.
What if you have minor children and die without an estate plan?
If you die without an estate plan, the court will decide who will care for your minor children. The court will try to act in the best interests of the children. However, the judge does not have specific knowledge of your children's needs, personalities or lifestyles, and the outcome might be different from what you intended. In most situations, the court will appoint a willing family member, but if there are disagreements, the resulting fights can tear your family apart forever.
Furthermore, the court will have to pick someone to manage the property left to minor children. This person is called a conservator or guardian. As well as managing and investing the child's property, the conservator will be required to file an accounting every year, reporting all the money going into and out of the child's account. This responsibility can be very burdensome. Through estate planning, you have the much better option of creating a trust to hold the minor's property.
What if you have a child with special needs and die without an estate plan?
Under intestate laws, your property is distributed to all your children equally if you die without an estate plan. This can have devastating consequences if one of your children has special needs. Many individuals with special needs rely on government benefits, especially Medicaid, Medicare and Social Security disability income. These benefits have income and asset limits, and receiving a lump sum inheritance payment can disqualify your child. To ensure that your child will continue to receive the care they need, you will need to work with an estate planning professional to create a special needs trust. Without a special needs trust, your child's access to government benefits will be in jeopardy.
Secondly, equal is not necessarily fair, especially when children are disabled and cannot support themselves. If you want your disabled child to receive a larger share of your inheritance, you must create an estate plan.
What if you have a blended family and die without an estate plan?
If you have a blended family, there is a good chance that your property will not be distributed as you intend if you die without an estate plan. For example, intestacy laws do not recognize stepchildren. Your property will not pass to stepchildren unless you have legally adopted them. This is true even if you raised the child as your own from a young age.
As a second example, if you remarry later in life and die intestate, a large portion of your inheritance will typically go to your surviving spouse. This can have unintended consequences if you had children from a first marriage. In a traditional family, after your surviving spouse passes away, the inheritance will flow down to the children that you shared together. However, when your second wife dies, the children from your first marriage will be entitled to nothing from the second wife's estate.
What if you have financially irresponsible family members and die without an estate plan?
State intestacy laws do not take into account how financially responsible your family members are. Your inheritance will be distributed regardless of whether the family member has an addiction, is a spendthrift, refuses to work or is going through bankruptcy. The wealth that you worked hard to build can be quickly squandered.
If you want to protect your inheritance from financially irresponsible loved ones, you must engage in estate planning. You can create an incentive trust and place restrictions on the inheritance, such as getting into rehab, getting a job or completing education. Other options include delaying the distribution of the assets until the individual reaches a certain age or spreading the distributions out over time.