Many people think that if they die while they are married, everything they own automatically goes to their spouse or children. They’re actually thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as “intestate.” In that case, the specifics will vary depending on each state's law, so where you live when you die can significantly change the outcome for your family. However, the general rule is that your spouse will receive a share, and the rest will be divided among your children. Exactly how much a spouse will inherit depends on the state, though.
Now, it may seem like, “So far, so good.” Your spouse is getting an inheritance, so are the kids. But here are some examples of how the laws can fail many common family situations.
First off, if both parents of minor-aged children die intestate, then the children are left without a legal guardian. Kids don't automatically go to a godparent, even if that's what everyone knew the parents had intended. Instead, a court will appoint someone to be the children's guardian. In such situations, the judge seeks to act in the children’s best interests and gathers information on the parents, the children, and the family circumstances. But the decision is up to the court, and the judge may not make the decision that you, as a parent, would have made.
When it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children. But, that’s not necessarily the way many families are structured, and things can become legally complicated quickly.
According to Wealth Management, one analysis has 50 different types of family structures in American households. Almost 18% of Americans have been remarried, and–through adoption and stepfamilies–millions of children are living in blended families. The laws just haven't kept up, and absurd results can occur if you rely on intestacy as your estate plan. Stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit from you.
Say, for instance, a father has a will that allocates assets to his spouse and two children, then they adopt a third child. Then, the father dies in a car accident before he's able to revise his will. In some states, because the adopted child is not mentioned in the will, she may not be entitled to any inheritance.
If that isn't worrisome enough, consider that, in some states, the law provides that an adopted child still has rights to the biological parents' assets–and the biological parents are entitled to inherit a child's wealth. (Imagine if the adopted-as-an-infant Steve Jobs had died intestate, and his biological parents demanded a share of his estate!)
Of course, with a will or trust, you can control your estate and essentially eliminate the risk of these crazy results.
What if You and Your Spouse Are Separated?
State law decides what happens to your estate if you are separated from your spouse when you die. Much of the time, the court ignores your separation and just considers you still legally married.
Unless you have a prenuptial or postnuptial agreement, it is extremely difficult to disinherit your spouse. Again, even if a spouse is omitted from a will, state laws might choose to give a surviving husband or wife a share of the assets.
If you are separated from your spouse, and your divorce is pending, you should definitely talk with your divorce lawyer and an estate planning attorney about your options.
Intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate's assets are still vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family may not receive the lion's share of the estate. They'd get the leftovers.
The best way to safeguard and pass along what you’ve worked so hard to build is to talk to a qualified estate planning attorney. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.