No Will? You Still Have a Plan

Last week, we discussed that to make your will work, it had to go through the probate court process. But what if you have not will or trust? Well firstly, you would be like the majority of people in America who have done no estate planning.

However, just because you do not have a signed will or trust, it does not mean you do not have an estate plan that will direct the distribution of your assets or “stuff” after you kick the bucket. You do. You just didn’t write it. Your state lawmakers did.

Also as we discussed last week, upon your demise, if you have any property in your sole name without a payable- or transfer-on-death beneficiary designation, it will have to go through the probate court process. If you do not have a signed will, state statute determines who will get what after you are gone. I do not know about you, but I would rather leave instructions for my stuff after I am gone, rather than letting the folks in Lansing make that decision.

If you are not married and you die without a will, your stuff would first be divided equally among your children. If any of your children predecease you, that child’s share would go to his or her children, then grand-children, etc., until a living descendant is found. If a predeceased child has no then living descendants, that child’s share would be divided among your other living children or their descendants.

But if you have no living descendants, your stuff would go to your living parent(s). When both of your parents have predeceased you, distributions then go down the bloodline. Your estate would then be distributed to your siblings, then to nieces and nephews, etc., until a living descendant of your parents is found.

If you have no living descendants or parents and your parents have no living descendants, then up to your grandparents and back down the bloodline until a living relative is found. If still no living relatives are found, then up to your great-grandparents and back down. Only if you had no living relatives, would your stuff end up going to the state unclaimed property fund.

Married persons present other issues. You may have been married for a number of years. Most long-term married couples generally want some variation of the “Honey, I love you” plan, which is “Honey, I love you. I leave it all to you. Our beneficiaries can have it after we are both gone.”

Unfortunately if you have no written will or trust, this may not be what happens. If you and your spouse have joint biological or adopted children and you died without a will or trust, your surviving spouse would only get the first $224,000 of your probate assets in 2017. The rest of your estate would be divided into two equal shares, one share for your surviving spouse and the other share to be divided between your then living joint children and the descendants of any deceased joint children. This is not a “Honey, I love you” plan. If your primary asset was your home, your surviving spouse may have to sell the home just to pay off the kids.

There is often an unwelcome surprise for your children in short-term second marriage situations. Most of the people with whom I have dealt who are in the early years of a second marriage, want their separate property to go to their own respective children. This oftentimes is not what happens when there is no planning.

For example, let’s say you died without a will or trust after a second marriage to Thor, your Swedish personal trainer, or Bambi, your aerobics instructor, who is much younger than you and outlived you. If your children are not also children of Thor or Bambi, then Thor or Bambi would keep the first $150,000 of your probate estate in 2017. One-half of the rest of your estate would go to Thor or Bambi and the other half of the remainder would be divided among your biological children and/or their descendants.

I know of one case in which a widowed fellow died two weeks after remarrying. He had an estate of about $800,000, but did not have a will or trust. His new wife received nearly one-half million dollars of his assets for this two-week marriage and was in control of the entire estate administration. The kids only received a little over $300,000. This is only about 40% of the entire $800,000 estate they would have received two weeks earlier, before the marriage. I very much doubt that their father intended that his new bride was going to get so much of his estate.

The best way to assure that your property would be going to your children or other beneficiaries instead of Thor or Bambi, is to firstly have a properly drafted will or trust based estate plan. And secondly, have Thor or Bambi sign a pre- or post-nuptial agreement. With this agreement, Thor or Bambi would waive any claim he or she would have against any of your property upon your death. In this way, your entire estate would go to your children or other beneficiaries instead of some or all of your estate going to Thor or Bambi and their kids.

In long-term second marriages, You may consider Thor or Bambi’s children as your own, or even more so than your own kids. You may want all your and Thor or Bambi’s children each to receive shares of your and Thor or Bambi’s estate. This is a variation of the “Honey, I love you” plan. When one of you dies, the survivor of you would have use of the entire marital estate. Only after you are both gone, would each of your respective kids have a share of the entire marital estate.

If you and Thor or Bambi did not have a will or trust, this may not happen. If you died first in 2017, your children would only receive one-half of the assets titled in your sole name at the time of your death which are in excess of $150,000. The rest of the marital estate, including property owned jointly with Thor or Bambi, would go to Thor or Bambi. Upon Thor or Bambi’s death, all of the property now in Thor or Bambi’s name, would only go to Thor or Bambi’s children or other heirs. Your children would receive none of these assets.

It is extremely important to have your estate planning documents in place to make sure that the persons you want to benefit are those for whom you have provided, especially if you are married. With second marriages, it should be made clear whether or not Thor or Bambi or their children are to receive any share of your estate.

With proper planning, you can stay in control while you are alive and well, plan for you and your loved ones in the event of your mental disability, and when you are gone, give what you have to whom you want when you want the way you want, all at the lowest overall cost to you and your loved ones.

By Matthew M. Wallace, CPA, JD

Published edited October 1, 2017 in The Times Herald newspaper Port Huron, Michigan as: No will? You still have a plan

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