What is a lawyerly answer to this most basic of estate planning questions? Simple, “yes and no.”
Now that I hope to have amused you, allow me to explain the rationale behind the lawyerly answer of “yes and no.” All attorneys understand from experience that for every generalization he or she might make, there are exceptions to that generalization. Perhaps the best way to answer this common question of the “need” for a Will is to answer it in two parts. First, what happens to my property if I die without a Will? Second, what does a Will do, how is one obtained, and is it necessary in my case? This is Part 1 of a two-part blog article. In it we will review the laws of intestacy (that is, dying without a Will) and the transfers of wealth without the use of Wills. In the second part of our discussion, in a later blog entry, we will consider the usefulness of a Will, when such an instrument is needed to carry out your wishes, and the advantages to having a Will even when one is not strictly necessary.
Some people fear that if they die without a Will their property will go to the state. This is mostly untrue, at least for New Yorkers. In some states, if a person dies without a Will and without any closely-related blood relatives, then the property can “escheat” (in other words, be transferred) to the state where the person lived. If a New Yorker dies without a Will and without known closely-related family members, then the assets of the estate may be deemed to be abandoned or are, by court order, deposited with the State and available for withdrawal should a family member come forward and prove his or her entitlement to the estate. Of course, with the passage of time, the likelihood of such a person coming forward diminishes to zero. In effect, the money enters New York’s general funds and used for state purposes even if there is a valid claim on the money. New York has collected a total of $16.5 billion in unclaimed funds over the years!
If a person dies without a Will, then the decedent’s assets that are titled in his or her name passes to the decedent’s next-of-kin, or “distributees” as they are called in New York. There is a state-imposed order of inheritance called “intestacy.” A distributee is a close relative, either a surviving spouse or a close blood relative. In effect, the State of New York “writes” a Will for you if you do not have one in a statute called the Estates Powers and Trust Act Section 4-1.1. This law establishes the rules of intestacy and the priority of inheritance. An easy way to summarize this law of “intestacy” (i.e., dying without a valid Will) is to state that a decedent’s spouse and the closest blood relatives take priority of inheritance. Here are some of the most common examples of intestacy:
– A person dies with a surviving spouse and two children (either biological or adopted). The surviving spouse receives $50,000.00 plus one-half of what remains in the estate while the decedent’s children divide the rest equally between the two of them. A variation: Suppose the person dies with the surviving spouse, two children, and both parents. The same result. The statute cuts off close blood relatives in accordance with its definition of what is a “distributee.” In this variation, the decedent’s parents are not distributees.
– A person dies with three surviving children (either biological or adopted) but no spouse. Each of the children takes one-third of the estate. A variation: Suppose the person dies survived by the three children and both parents. The same result. The statute cuts off close blood relatives in accordance with its definition of what is a “distributee.” In this variation, the decedent’s parents are not distributees.
– A person dies with no surviving spouse, no children or grandchildren but is survived by both parents and two siblings. The two parents divide the estate equally. In this variation, the decedent’s siblings are not distributees.
There are many caveats to and variations of these examples of intestate distribution. The law can be made easier to understand if you refer to the attached two-page diagram that contains a family tree and different scenarios of inheritance under the rules of intestacy.
Aside from intestacy, there is another factor to consider. Much of our wealth today is located in assets that would not be subject to the rules of intestacy or even to disposition by a Will. It is entirely possible (and sometimes desirable from an estate planning perspective) to die with a large estate and yet still not need the intervention of the court to administer the estate or to distribute its assets, either under the rules of intestacy or under the terms of a probated Will. There are exceptions to most generalizations, but even so there are many kinds of assets that are usually immune from Wills and intestacy because they operate by their own terms or in accordance with different laws. Some of them are:
- Individual Retirement Accounts (IRAs);
- Living Trusts (either revocable or irrevocable);
- Totten Trusts (bank accounts titled “A in trust for B”);
- Real Property owned jointly with another or as spouses;
- Joint bank accounts with rights of survivorship;
- Life insurance with a designation of beneficiary; and
- Retirement, pension benefits with designated beneficiaries.
– A person dies with bank account that is titled “John Doe in trust for Jane Doe.” Upon John’s death, Mary becomes the owner of the account and, usually, upon the presentation of a death certificate to the bank, will be given the proceeds of the account.
– A person dies owning a house with her spouse either as “tenants by the entirety” or as “joint tenants.” In either case, the surviving spouse now becomes the owner of the house automatically.
The lessons to draw from this brief review of the effect of dying without a valid Will are:
- How are your assets titled? Was the designation of a beneficiary made decades ago, for example, in your life insurance policy? Is this beneficiary still the person you want to receive the proceeds of the policy?
- Take an inventory of your assets, and based upon this discussion determine how they are titled and how they would be distributed at your death. Is this what you want to happen?
- If you cannot answer any of these questions easily, or if the answer is not to your liking, then you should consider consulting with an attorney experienced in these matters.