Dying without a Will

What happens if you die without a last will and testament?  Many people believe that if they die without a Will, their money goes to the State.  This isn’t true.  What really happens is that your money passes to those individuals whom various state statutes designate.  These statutes are known as the Intestate Succession Statutes.

When an individual dies, his assets pass in one of three ways to his heirs—by operation of law, by contract, or by Will or intestate succession if he dies without a Will.  If a married couple owns a house together, when one spouse dies, the house passes automatically to the surviving spouse.  The house is said to pass by operation of law to the surviving spouse.  The death of her spouse means that she owns the entire house in its entirety.  She doesn’t have to do anything to become the absolute owner of the property.

When a life insurance policy is paid to a beneficiary after the death of the insured, this is an example of property passing by contract.  The life insurance policy—the contract—dictates who will receive the property after the death of the insured.

If property isn’t passing by contract or by operation of law, then the individual’s Will controls who receives the property, and if the individual does not have a Will, then the intestate succession statutes control who will receive the property that does not pass by operation of law or by contract.

The intestate succession statutes are essentially what the New Jersey government believes to be fair to the surviving relatives of a deceased individual who dies without a Will.  If you are a surviving relative of an individual who dies without a Will, you cannot challenge the intestate succession statues.  In other words, you cannot say, “I took care of Aunt Rosie, so I should get all of her money, not you.  You did nothing for her!”

Assuming that you actually did help Aunt Rosie no less fervently than Mother Teresa cared for the sick of Calcutta and her other relatives did absolutely nothing—in fact, let’s assume that the other relatives hated Aunt Rosie and let their hatred be known—it’s irrelevant.  If Aunt Rosie dies without a Will, then her assets are going to pass in the manner specified in the intestate succession statutes.

Those statues are the embodiment of what the government believes to be fair and equitable and those statutes are unassailable.  Aunt Rosie did not take the time to draft a Will for herself, so the government wrote a Will for her.

The people who will receive your estate if you die without a Will are a series of progressively less closely related individuals to you.  Your spouse and your children are in the first tier of potential heirs.  Next comes your parents, then your siblings, then your aunts/uncles, then your cousins, and so on down the blood line.  Only if you have no relatives would your property pass to the state.

In most cases, a deceased person has some relative.  The decedent might not have even know the person who inherits his estate.  Such a person would be known as a “laughing heir,” because unlike close relatives who are saddened by the death of their loved one, laughing heirs are someone who never knew the decedent yet inherit his money.

Within a class of relatives of the same degree, relatives of the half blood inherit the same as relatives of the whole blood.  What this means is, a half-brother inherits the same amount as a whole-blood brother of the decedent.  A cousin of the half-blood inherits the same amount as a cousin of the whole-blood.  This is important in today’s society of second and third marriages.

Using Living Trusts Wisely

Many clients ask me if they should have a revocable living trust.  These clients may have heard how a revocable living trust is better than a last will and testament.  Often they seek to avoid the tangles and delays of probate.

The word “revocable” means the trust can be revoked without the consent of another individual.  So, for instance, if Mr. Smith established a revocable living trust, Mr. Smith retains the right to revoke the trust any time he wishes.  He can also modify the trust any time he wishes.

The word “living” means that the trust is created during Mr. Smith’s life.  The opposite of a living trust would be a testamentary trust.

A testamentary trust is a trust established in the last will and testament of a decedent. Mr. Smith can establish a living trust during his life, but he would establish a testamentary trust in his Will.  A testamentary trust, like a Will, is only effective when a person dies.  A living trust is effective when the person is alive.

Because a revocable living trust is effective when Mr. Smith is alive, Mr. Smith can put assets into the trust during his life. He can title his house into the trust or his bank accounts.  Theoretically, he could transfer most of his assets into the trust, bur some assets, such a car, might be difficult to transfer into the trust because it would be difficult to insure a car if it were owned in a trust.

I often draft revocable living trusts for clients. In most instances, the client owns real estate in another state, such as Florida.  I advise the client to have a revocable living trust in order to avoid probate in the other state.

If Mr. Smith owns real estate in Florida at the time of his death, then his Will would have to be submitted to probate in New Jersey and Florida. By re-titling his Florida house into his revocable living trust, his estate will avoid having to submit his Will to probate in Florida.  To me, avoiding probate in two states is worth the extra time and effort it takes to re-title Mr. Smith’s house into a living trust.

On the other hand, simply avoiding probate in New Jersey is not worth any extra time or effort. The process of submitting a Will to probate in New Jersey is very simple and very inexpensive.  The cost of probating a Will in New Jersey is about $150 whether the value of the estate is $100,000 or $10,000,000.

Because there are some assets that are difficult to place into a trust, such as a car, in most cases, a person cannot avoid probate with a revocable living trust. And whether a person’s Will has to be submitted to probate for a $10,000,000 estate or for a car only, the cost and time involved in submitting a Will to probate is exactly the same.  For that reason, in most cases, I typically don’t recommend having a revocable living trust if you don’t own real estate in another state.

To make matters even more complicated with a living trust, I have seen many couples who have joint revocable living trusts. A joint revocable trust is a trust that is established by both members of a married couple and that is funded with the assets of the couple.  For instance, Mr. and Mrs. Smith put all of these assets into one trust.  When either spouse dies, his/her assets typically pass into a sub-trust inside the main trust for the benefit of the surviving spouse.  When the surviving spouse dies, all of the assets typically pass to the couple’s children.

The problem with these trust is, the trust documents are frequently very long, very complicated legal documents. Ironically, Mr. and Mrs. Smith established the trust to avoid costs to their estate and complications, but the time involved in properly administering a joint living trust far outstrips the costs of having separate Wills for each member of the couple.

Living trusts can be useful tools that can reduce the cost and expense of estate administration after your passing, but if used improperly, they can actually result in significantly greater costs to your estate.