Dying Without a Will or Trust

The act of dying without a will is called intestacy.  The distribution under the laws of intestacy will vary from the wishes of the deceased.  Putting off planning in the hopes that the laws of intestacy will meet the deceased’s wishes will prove nothing more than false hope.

When a person passes without a will, the laws of intestacy will be applied to distribute the probate assets.  These are assets that will not pass by beneficiary designation or titling of the assets, such as jointly titled assets with right of survivorship.  Most state laws of intestacy provide that the assets will pass to the surviving spouse, if there are no descendants or if all descendants of the decedent are also descendants of the surviving spouse.  However, if there is no surviving spouse, then typically assets will pass to the decedent’s descendants.

There can be potentially unexpected differences between states and their distribution rules. Critical to this is the fact that if there are descendants from multiple relationships and/or marriages.

As an example, someone dying intestate, in New York would leave the surviving spouse $50k + ½ of the probate estate.  In Virginia it would be 1/3 of the probate estate.

The manner in which distributions occur could be disastrous as it relates to asset protection planning.  No matter which state law applies the intestate assets will pass outright, without regard for any tax or creditor protection planning, nor allocation of specific assets to a desired individual.  This would eliminate any multigenerational or generation skipping transfer tax planning.

The payment of taxes and expenses under intestate distribution could result in the immediate payment upon the passing of the first spouse, thus missing out on the opportunity of deferring the taxes to the second spouse’s death.

If the decision is to default to intestacy laws as opposed to planning for the distribution of an estate, the surviving family members will find this to be incredibly inefficient from a succession and tax perspective and will ultimately fail to provide sufficiently for long term planning for the children and other beneficiary’s. The use of a Will and/or Trust will help manage, not only the estate tax liability but will also provide for the proper distribution of specific assets and creditor protection for long term planning with professional asset management for the beneficiary’s if desired.

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