Estate Planning By Default: Let the Non-Buyer Beware!

For years, it has been well known that at least 50% of all Americans die without a last will and testament.  Following the economic downturn in 2008,  those numbers rose to as high as 70%.  Without a will or other basic estate planning documents, the family of a deceased individual has to rely on a state specific statute known as the intestacy statute.

Intestacy laws were originally the sole way of inheriting property.  In the 16th Century, this changed by King Henry VIII and the passage of the Statute of Wills, which allowed individuals to choose who inherited their property.  The default inheritance laws remained for those who did not draft a will and became the basis for modern intestacy law.  In the United States, the laws of intestate succession differ from state to state.

New York outlines the order of inheritance for family members inheriting through intestate inheritance.   Because there is no will, the Surrogate’s Court administers the property of the deceased individual based of on series of proofs aimed at determined who the next of kind is.  A spouse has the highest priority followed by children.  If the deceased has neither, the property and the right to administer to the property pass to the parents of the deceased, then to the siblings and then to the grandparents.  The line of succession continues until first cousins once removed.  If there are still no successors, the assets are transferred to the state.

The default nature of the intestate succession is the sole advantage that intestacy has over preparing your own estate plan.  There is no cost, no work that must be done by the deceased individual prior to death and the question of who inherits/administers the estate are known.  However, the cost to the family of a deceased individual far outweighs the benefits.  An intestate administration can be more costly than a probate administration.  In addition, by relying on the intestacy statute, an individual gives up their personal rights to decide how their property passes, who it passes to and who will be responsible for administering the property.  Losing these rights can have a significant adverse effect on your survivors and create family conflict.

The costs of intestate succession are borne by all families who have a relative who dies without an estate plan, but certain groups bear an even greater burden.  They include:

1)   Married couples with children-If a deceased individual leaves behind a spouse and children, then the children and spouse share the estate almost equally (the spouse receives an additional $50,000 before the remainder is split).  The consequence of this is that property meant for a spouse will end up in the hands of children.  If the children are not of a suitable age, the property can be quickly wasted and lost.  Furthermore, property passing to children rather than a spouse cannot be protected from estate tax by using the unlimited marital deduction.

2)   Non-Marital Children-Children born outside of a marriage may face additional headaches if a parent dies intestate.  Under New York law, a child is automatically considered to be the child of their biological mother for inheritance purposes.  However, if a father dies intestate, a non-marital child may be required to prove paternity before being allowed to inherit.  This may require writings from a deceased father, affidavits from friends and family of the father and even DNA testing to prove that the child was, biologically or socially, the child of the father.

3)   Domestic Partners-The intestacy statute does not allow a domestic partner or a ‘common law spouse’ to inherit from a deceased individual.  Even if the partners had lived together, raised children together or treated each other with the same regard as a married couple, the domestic partner is left out of the intestate succession.  New York does not recognize common law marriage, so for a domestic partner to be protected, there must be a will naming them a beneficiary or they must officially marry.

4)   Single Parents-While a single parent will be able to pass property to their children, the lack of a clear substitute for them if they die may cause tremendous headaches.  Without a guardian appointment, several family members may be left to decide who will care for a minor child with no guidance from the deceased parent.

5)   Taxable estates under New York or Federal Estate Tax laws- The ability to utilize the estate tax exemptions and marital deductions under New York and Federal Estate Tax law may be compromised without an estate plan.  Besides property passing to the wrong people, failure to prepare an estate plan can expose an estate to unnecessary or premature taxation.

The Latin expression ‘caveat emptor’ warns buyers to be cautious before purchasing property.  When it comes to estate planning, it is actually the persons who choose not to have an estate plan prepared who should be aware of the potential dangers and dilemmas that their failure to plan may yield.

Please contact info@levyestatelaw.com for more information about preparing an estate plan.

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