A recent survey reports that only a third of Americans have a will. Dying with a will in place provides the structure needed to be sure your wishes are followed when your estate is distributed. The process should be streamlined if you have a valid will in place. If not, it can be long and arduous. As uncomfortable as the topic may feel, without a will, the red tape, expenses, and uncertainty created for loved ones is far more significant. So, what happens when someone dies without a will? Let's take a look.
Dying with a will in place provides the structure needed to be sure your wishes are followed when your estate is distributed. Alternatively, if a spouse dies without a will, loved ones will face additional financial and emotional challenges. A recent survey reports that only a third of Americans have a will. However, the benefits of having one are plentiful, including these five:
Save time, money, and stress for your loved ones. With or without an inheritance will, most estates go through probate, unless there are no assets or the estate's debts exceed the assets. The process is more complicated if the deceased has no will — a status known as intestate. The state names an administrator, and the process becomes longer, costlier, and more stressful for loved ones.
Decide who gets your property and who does not. With a valid will, you can designate beneficiaries who receive specific assets and beneficiaries who receive nothing. Your chosen executor will distribute assets after estate bills are paid. What happens with personal belongings after death without a will? The courts decide who gets what, making an already difficult time even more difficult.
Name a guardian for your kids. You can use your will to nominate a guardian for children under 18 or incapacitated dependents: typically a surviving parent. In case you're wondering what to do when parents die without a will, without a document naming a guardian, if both parents pass away, the court will designate one... In this tragic situation, your children could be raised by someone you wouldn't have selected, and the court-appointed guardian could mismanage the assets your children inherit until they reach age 18 and gain complete control.
Include a clause to provide for your pets. You may consider your pet part of your family, but they're considered property under the law. As a result, your pet can't inherit any assets from you. However, your will can designate a family member or trusted friend as your pet's caretaker and provide funds that cover your pet's care.
Avoid legal challenges. With a will, your after-death instructions should greatly diminish possibly contentious misunderstandings and arguments regarding asset distribution. Legal challenges are even more likely when you combine divorced and blended families with the absence of a will. A will also help stifle legal challenges by removing secrecy — since it becomes a public record — although the loss of privacy may be a high price to pay.
You can avoid probate by establishing a living trust during your life, where you put assets such as real estate that can't otherwise be protected with a beneficiary designation. A living trust functions much like a will in transferring ownership upon death. However, it affects only the specific assets left through the trust, maintains privacy after death, and provides protection from court challenges.
Living trusts can be irrevocable or revocable. An irrevocable trust relinquishes control of assets to a third party while you are alive, but a revocable trust lets you use your assets as you wish during your lifetime. When you die, the assets pass to designated trust beneficiaries using just the trust document, which makes probate unnecessary.
Dying intestate, or passing away without executing a valid will or estate plan, takes the distribution of assets out of your hands and into the state's, where decisions are based to a great extent on your current life situation. Although the laws of intestacy vary by jurisdiction, here are some common scenarios.
If you're single with no children, what happens if you don't have a will? Your entire estate will likely go to your parents after all your debts have been paid off with any assets you have. If you've already lost one parent, your remaining assets may be split between your surviving parent and any siblings. Your family will decide where to rehome any pets.
If you die intestate and have children, they will receive their share of your assets according to your state's intestacy laws. Adopted children would inherit the same as biological children if one of their parents died without a will. In most states, stepchildren and foster children do not fall under the definition of children for inheritance purposes, barring some specific relationship.
If you're married and die intestate, anything you and your spouse own together will go to your surviving spouse. However, any property you own separately may be divided among more people, such as your surviving spouse, children, siblings, and parents. If you’re divorced, remarried, and have children from both marriages, the division of intestate assets becomes more complicated and will depend on your state's laws.
If you're in a domestic partnership and die intestate, your surviving partner's inheritance status depends on the inheritance laws of the state where you live. Domestic partnerships have inheritance rights in some states and not in others.
Intestate succession occurs when you die without a valid will and your assets have not been left to others as beneficiaries designated through legal documentation or protected by a living trust. It is the order in which your state distributes assets. Each state's probate court handles intestate succession differently regarding spouses, registered domestic partners, unmarried partners, blood relatives, friends, and charities.
The order of intestate succession is generally some variation of this:
Your next of kin
If you die without a will and the probate court takes the responsibility of distributing assets in what it calls intestate succession, not all assets fall under the court's control. Understanding the difference between probate property and non-probate property may save your heirs considerable time and money if you protect your estate in advance.
After you die, if you have a valid will, your designated executor will take an inventory of all your assets, then determine what is and isn't subject to probate. If you don’t have a valid will, a state-appointed administrator will be responsible for this. Assets considered for probate must be listed with their values on the probate court documents.
Other assets — considered non-probate property — will bypass the probate process. They will go directly to co-owners or those designated as beneficiaries where appropriate.
The court can only distribute individually owned (or separate) property. If you're married, your spouse automatically receives full ownership of all jointly owned (or shared) property upon your death. That usually consists of all assets acquired and owned jointly by the two of you during the marriage. In this case, probate assets will be limited to whatever does not pass to your surviving spouse as jointly-owned property. Probate assets can consist of the following:
Personal possessions, including household items and all personal belongings such as clothing, jewelry, and collections.
Titled assets such as real estate and vehicles that you own solely or as a tenant in common with another person. While you can bequeath your share of such property to someone else, tenants in common do not have survivorship rights without a legal formality.
Some assets, such as bank accounts, will be easy to value. Others — such as antiques, collectibles, and jewelry — may require appraisals. Regardless, it’s essential to determine the estate's value because, in some states, probate is not required if it falls below a minimum amount. Some states also offer a streamlined probate process if an estate is small or all property goes to the surviving spouse.
The types of property that courts can't distribute using intestate succession include:
Property held in joint tenancy with survivorship rights where, if one owner dies, the other automatically receives the deceased owner's interest in the asset. Terms in title documents may read "tenancy by the entirety," "assets held in joint tenancy," or "community property with right of survivorship. For example, in community property states where couples are required to split equally all assets acquired during their marriage, if a husband died without a will, this right of survivorship could be provided automatically by law regarding real estate, bank accounts, and other assets.
Property held in a living trust, especially a revocable living trust, where assets are titled in the name of a trust or a trust is designated as a beneficiary. The trust names a trustee authorized to carry out its instructions, including distributing trust assets to beneficiaries.
Property with a named beneficiary within its contractual terms. Examples include life insurance proceeds, pension plans, individual retirement accounts (IRAs), 401(k) plans, other retirement plans, and medical savings accounts.
Property with payable-on-death (POD) designations — also referred to as transfer-on-death (TOD) — where the asset transfers automatically to the designated party upon your death.
In regards to POD and TOP designations, these assets can include, but are not limited to:
Bank accounts with a POD designation
Real estate with a TOD deed
Vehicles with a TOD vehicle title
Stocks and other securities held in TOD accounts
The state you live in will determine much of your heirs' estate inheritance if you die intestate, often applying an algorithm to calculate who gets what among your heirs. The order in which your relatives access your assets, or intestate succession, also varies by state.
If you own property in multiple states, each state will govern the distribution by that state's intestate succession laws. The two examples below show how different intestate succession can be from one state to another.
California is a community property state where the California Probate Code decides how an estate is distributed with no will. Here we’re only discussing probate assets, defined by the state's probate versus non-probate asset rules.
If your spouse survives you and you have no children, your spouse inherits the entire estate. However, if you have biological children, your surviving spouse will inherit your half of the community property plus one-half or one-third of the separate property, depending on how many biological children you have. Your children will inherit what is left.
If you own property such as real estate in California but live elsewhere, its intestate succession laws still apply to that property.
Texas is a community property state where the Texas Probate Code decides on property distribution after paying bills and debts. As a Texas resident without a will, your estate automatically enters the intestate probate process. First, your assets are divided into non-probate and probate assets — but we're discussing only the probate assets here — which consist of the following:
Community property: property owned jointly by the spouses
Separate personal property: cash, stocks, jewelry, and vehicles you own individually
Separate real property: real estate and any permanent structures you own individually, such as land or a house
Under Texas intestate law, your spouse inherits everything if you have neither children nor living parents. If you have surviving parents, your spouse inherits the following while your parents inherit whatever remains:
Your half of the community property
All of your separate personal property
Half of your separate real property
If you're married and have children, the distribution of your half of the couple's community property, your separate personal property, and your separate real property depend on whether the children are also the descendants of your surviving spouse. The distribution of separate real property may also differentiate between passing the title outright versus a "life estate" that limits the use and occupancy of the property to the tenant's lifetime.
If you die intestate and leave no spouse, your estate descends in a specific order to your kindred, including children, parents, siblings, and grandparents.
Remember that the distribution of your assets may vary depending on specific circumstances. A properly documented will or trust dictates your wishes instead of the laws of the state. Consider consulting with an estate attorney to understand better how you may craft an estate plan. If you don't have an estate attorney, your financial advisor can help refer you to one!
It's essential to have an easily authenticated will or a living trust to save your loved ones a lot of time and money and ensure that your assets will be distributed according to your wishes. An estate planner or professional advisor can help you set up a will and trust. Many nuances and items are involved, so professional help can make estate planning much more manageable.
Sharon O' Day has been writing in the personal finance space for half a decade, with an MBA in Finance from the Wharton School.