Intestacy means to die without leaving a valid will. When a person dies without leaving a will, that person is considered to have died intestate. All states have enacted statutes to deal with this situation. These statutes are call intestacy statutes and the intestate decedent’s property is distributed according to the laws of descent set forth in these statutes. Accordingly, intestacy statutes create a “surrogate will” for the decedent when the decedent dies with no valid will.
If a person dies with a will, all states strongly favor the decedent’s intentions as expressed in the will. However, even if a person has made a will it is still possible for the person to die partially intestate. This situation occurs when a gift in the will is invalid for some reason, or if the terms of the will simply do not cover all of the property. For example, if the will only disposes of personal property (such as jewelry, art, automobiles, and antiques) that personal property will be distributed to those named in the will according to the terms of the will. However, if the person had purchased a parcel of land after the will had been drafted and failed to later include that land in the will, then the real estate may pass to the heirs under the laws of intestacy. In some states, if an otherwise valid will is not properly filed with the probate court within a specific time, the entire estate will be distributed according to the state’s intestacy laws.
Determining Who Will Receive a Share of an Intestate Estate
If individuals die intestate, their state’s intestacy laws will make assumptions about how they would want to leave their property. Some of these assumptions may be correct, and others may result in the distribution of property in a manner far different from the deceased’s wishes. Although the intestacy laws will determine who will inherit the property (heirs) and in what shares, the statutes do not determine who will receive specific items of property. For example, the law may state that the two children, a daughter and a son, will each take one half of the estate, but it will not specify that the daughter should receive a particular ring and the son should receive an particular antique desk.
For the most part, states assume that the closer the familial relationship, the more likely the decedent would want the property to go to those persons when the decedent dies. In this way, intestate laws generally favor blood relations over other types of relationships. It is also common for state laws to require that heirs survive the decedent by a certain amount of time. This time can be expressed in hours, days, or months, depending on the state. These rules become important when several members of a family are killed at or about the same time.
Intestacy Laws and Surviving Spouses
Intestacy laws vary considerably from state to state regarding surviving spouses. It is not automatic that the surviving spouse will inherit the entire estate when the other spouse dies intestate. In most states, the surviving spouse inherits the greatest portion of the decedent’s estate. However, intestacy laws almost always divide the estate between the decedent’s spouse, children, and sometimes even the decedent’s parents. If there is no spouse or children, and if the decedent’s parents are dead, then the estate usually is distributed among the decedent’s siblings or other relatives according to specific rules delineated in the statutes.
In addition, regardless of whether there was a valid will or not, many states set aside an allowance for a surviving spouse and/or children. The allowance amount is free from any other claims against the estate or debts of the decedent. As such, the spouse and/or children receive a specific dollar amount of the estate before creditors, heirs, and other beneficiaries receive their shares of what remains. Depending on the state, the amount can differ widely. For example, the amount in California is set at $50,000 but is only $2,000 in Delaware.
If there is no will, many states also give the surviving spouse a definite financial interest in any real estate owned by the decedent, such as “one-half,” or a “life estate.”
Intestacy and Marital Property
The distribution of the estate of an intestate spouse depends to some extent on other laws governing marital property. For example, in states which recognize community property, spouses generally own equal rights to all marital property regardless who has actual title. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Typically, in a community property state the decedent’s share of the community property owned at the time of death will pass automatically to the surviving spouse. Property that the decedent owned individually (e.g. premarital property) is usually divided between the surviving spouse and any children. The spouse usually takes one quarter of this individual property and the surviving children take the remaining three-quarters of the property. For individuals living in a community property state, the complexity of the intestacy and other probate laws make it is especially important to retain competent legal advice.
Typical Intestacy Distribution Methods
Below are four examples of some of the most common distribution methods under typical intestacy laws.
- Where the Intestate Decedent is Married but has no Children. If the intestate decedent is married but has no children most states distribute between one-third to one-half of the estate to the surviving spouse. Anything remaining generally goes to the decedent’s surviving parent or parents. If both of the decedent’s parents are dead, many state intestate statutes provide that the remaining property be distributed among the decedent’s surviving brothers and sisters.
- If the Intestate Decedent is Married and has Children. If the intestate decedent is married and has children most intestacy statutes distribute just one-third to one-half of the decedent’s property to the surviving spouse. The remainder is divided among the decedent’s surviving children, regardless of their ages.
- If the Intestate Decedent is a Single Person with Children. If the intestate decedent is a single person with children, state intestacy laws provide that the entire estate will be distributed equally among the children, regardless of their ages or circumstances. For example, an adult child will receive the same amount as a minor child, and a wealthy child will take the same share as a child living under more modest circumstances. The only determining factor is the blood relation to the decedent. Most states also make no distinction between siblings of whole blood and siblings of half blood. Thus, in a case where a decedent has children from two marriages, each child from both marriages will take an equal share of the decedent’s estate. Likewise, intestacy laws in all states treat legally adopted children the same as full-blooded relations of the decedent. The laws may differ significantly with respect to the decedent’s step-children and illegitimate children.
- If the Intestate Decedent is a Single Person with no Children. If the intestate decedent is a single person with no children most state intestacy laws favor the decedent’s parent(s) in the distribution of his/her property. If both parents predecease the decedent, many states divide the property among the decedent’s surviving brothers and sisters.
Intestacy laws that distribute property to surviving children and other relatives use various formulas to divide the property. In a state that employs a “per capita” method, the heirs receive equal shares. For example, if there are eleven heirs of a decedent who dies intestate, each will receive one-eleventh of the decedent’s estate.
Other states have more complicated schemes that determine the amount of an heir’s share according to the degree of relationship to the decedent. For example, if the decedent has two adult children one of which is dead with two surviving children of his own (the decedent’s grandchildren), the decedent’s surviving adult child would take one half of the estate and the decedent’s two grandchildren would share their deceased parent’s half share, each taking one-quarter of the estate. This is known as “per stirpes” distribution, where each branch of the family gets an equal share.
If the intestate decedent has no living spouse, children, parents, or siblings, intestacy laws provide mechanisms to determine other blood relatives qualified to take the estate. Overall, there is a strong statutory preference to distribute the decedent’s property to heirs, regardless of how remote they may be to the decedent. However, in those rare cases where no living heir can be located, then the decedent’s estate will escheat to the state, that is, the state takes ownership of the decedent’s property.
Estate and Inheritance Tax Considerations
When a person dies the federal and state governments may impose taxes on the transfer of the property. This is true whether the person dies with a will or intestate. These taxes are calculated according to the rules of estate tax law. In some cases, the property received by heirs may also be taxed according to inheritance tax laws. The inheritance tax is usually determined by the amount of property received by the beneficiary, as well as by the beneficiary’s relationship to the decedent. Basically, it is a tax on the right to receive the property. Every state except Nevada imposes either an estate tax or an inheritance tax and some states employ both. Inheritance taxes are not levied in addition to federal estate taxes because the federal law allows an offset for the payment of state death taxes. The maximum in states with inheritance taxes are:
- Delaware 16%
- Kansas 15%
- Kentucky 16%
- Indiana 15%
- Iowa 15%
- Maryland 10%
- Massachusetts 16%
- Michigan 17%
- Mississippi 16%
- Montana 32%
- Nebraska 18%
- New Hampshire 15%
- New Jersey 16%
- North Carolina 17%
- Ohio 7%
- Oklahoma 15%
- Pennsylvania 15%
- South Dakota 30%
- Tennessee 13%
Currently, the estate of a decedent is liable for a tax if the estate exceeds $650,000. The United States has recently enacted new laws that will increase this amount in certain increments over the next several years. In calculating the value of an estate for tax purposes the assumption is that all property owned by the decedent at the time of death is subject to taxation. This amount can be modified by several factors:
- The decedent’s debts
- Certain transfers to charity
- Certain transfers to the decedent’s spouse
- Some casualty and theft losses
An intestate estate is the most exposed to estate and inheritance tax liability. The greater the value of the estate, the greater the tax burden on the estate—and potentially on the beneficiaries of the estate. This fact is a powerful inducement for many people to seek estate-planning advice. There are several methods to shield the value of an estate from estate and inheritance tax laws. Along with the creation of a will, some of these methods may include the creation of a trust, purchasing life insurance policies, and making transfers of property prior to your death, known as inter vivos gifts.