The Importance of a Will

Dying without a Will

A popular instructor at a law school always starts his first class on wills by asking the class how many of them have a will. After a show of hands he states to everyone's surprise that everyone in the room has a will they may just not know it.

When someone in this country dies without a formal will, state intestacy laws kick in to provide a distribution of the assets to the appropriate heirs. This division and transfer of assets is the primary function of a formal will. Therefore, if someone does not have a will, the state will provide one. It just may not be the sort of distribution of assets that the person who died wanted. This is especially true where there are previous marriages and children of previous marriages. The wishes of the deceased individual relating to children of a previous marriage, current spouse and stepchildren as well as children of the new marriage are not addressed by state intestacy laws. In this case, having a will is critical.

Each state has different rules as to who gets what. As a general rule, states recognize the right of an existing spouse and natural children of the deceased to receive a portion of the assets. In most states, the spouse and children share in the assets. This may not be the distribution desired by the person who is deceased. For example, in a remarriage, the surviving spouse and her children will receive the assets, but the children of a previous marriage may be left out. That person may want a surviving spouse to retain all the assets and take care of the children as necessary. Or perhaps equal shares to all children may be desired.

Under intestate laws, if there is no spouse, the children typically receive the assets. If there are no children and no spouse, distribution usually goes upline starting with parents, then descendants of parents, then grandparents and their descendants and so on.

Every state has laws that protect a surviving spouse from being disinherited by the deceased spouse. Whether deliberate or not, a deceased spouse cannot create a will or deliberately gift property owned commonly by the two in order to keep the surviving spouse from having those assets. How this protection is afforded depends on whether the state is a "common law state" or a "community property state." In a common law state, the rights of a surviving spouse are typically called the "elective share."

Community Property State

Currently there are nine states that have adopted the Civil Law doctrine of community property. These states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Community property is similar to tenancy by the entirety and joint tenancy.

This system of property ownership law is derived from Spanish law that existed in the early years of our country in the west and southwest. This doctrine has been adopted in several other states over the years.

Community property is all property that a husband or wife acquires by their joint efforts during their marriage. All property owned prior to the marriage, or that was acquired by gift, devise, bequest, or descent, and the resulting rents and profits is considered separate property. All other property is community property. In other words, regardless of the name on the title or how it was acquired, the property is considered jointly owned by both spouses if it was acquired by their joint efforts while they were married.

When the first spouse dies in a community property state, one-half of community property is part of the deceased spouse's estate and the remaining one-half of community property continues to be owned by the surviving spouse. For example, suppose that Jim owns an IRA and chooses to name as his beneficiary someone other than his wife. In a community property state, if Jim acquired his IRA while he was married, his wife is entitled to one half of the value regardless of the beneficiary. At his death, the court will give his wife one half of IRA value.

In a community property state, a husband or wife can make a will leaving all his separate property and his one-half share of community property to anyone other than the surviving spouse. Therefore, while one spouse cannot prevent another spouse from inheriting one-half of the marital property or community property, one spouse can generally disinherit the other spouse from his separate property and one-half share of community property. Debts incurred during the marriage are also considered community property and are shared equally at death.

Because of the dilemma of possibly disinheriting a community property spouse of significant assets, community property states allow a surviving spouse to receive a minimum statutory share of the deceased spouse's estate.

Common Law State

Common law refers to a system of law inherited from the English common law system. Unlike civil law, which is controlled by statutes instituted by the government, common law is based on what is right and equitable at any given point in the history of the society. Common law is determined by interpretation of rulings of previous court decisions, called precedents. Thus, common law is always evolving to meet the needs of the society.

In a common law state, when one spouse dies, the property is divided based on who owned the property at death. Property that has beneficiaries will pass to those beneficiaries and if the beneficiary is other than a surviving spouse it will bypass the right of the surviving spouse to any of those assets.

Common law recognizes that at death, a surviving spouse could end up penniless if the deceased spouse chose to deliberately disinherit his survivor or failed to plan to provide for the survivor. Common law states have instituted statutes that protect the surviving spouse. Generally, a dollar amount plus a percentage of the remaining estate is available to the surviving spouse or simply a percentage of the estate is provided. This protection is called the surviving spouse's "elective share."

If the deceased spouse provided a will that gives the surviving spouse more than the elective share, then obviously the surviving spouse can opt for the amount in the will and not petition the probate court for an elective share.

Relocating between Community Property States and Common Law States

Property acquired by a couple in both community property states and common law states can complicate who gets what at death. Some states have adopted the Uniform Disposition of Community Property Rights at Death Act (UDCPRDA). This protects couples that move from a community property state into one where community property is not recognized, from drastic changes in the character and disposition of their property upon the death of a spouse.

The rules in other states for property acquired under either system, will require the efforts of an attorney who understands these issues and can come up with the most equitable distribution through the court system.

Wills

Even though, it must be evident at this point that a will is a much better solution to dividing assets at death than dying intestate, we must examine how useful a will is in many cases.

Many clients in a final years of life planning situation, have already expended or gifted assets. In many cases, the only remaining asset of any value is the home. If a home is the only remaining significant asset of any value, this makes the need for a formal will less important. Perhaps of more importance, when there are few cash assets, is the list of who gets what of the treasures and other personal belongings that are of little intrinsic value.

This is not to say that there are not remaining assets that should be included in a will. The will may also want to specify desired funeral arrangements and in some states the probate court will allow an executor or personal representative, who has not yet been appointed, to carry out these wishes.

If there are assets of value that are to be divided among the heirs, and there are definite wishes about who should get what, a will is vital. As we discussed previously, this is especially true where there are multiple marriages and children of those marriages. Experience over the years has given us numerous examples of the property going to the wrong people because no will was ever made.

Generally a will specifies the disposition of specific assets and such lists are incorporated into it. But, often the disposition of items with little intrinsic or economic value but immense sentimental or historical value is just as important if not more important to most us. These are such things as personal histories, achievement awards, genealogies, favorite ceramics, handicrafts, heirlooms, jewelry, special furniture, pictures, collections, etc.

It is important to make a list of who gets what of the "special" belongings and update it regularly. Sometimes in the haste and confusion of arranging long term care, "treasures" end up in the trash or at the local thrift store. Or even more likely, they end up in the wrong hands. The improper distribution of these special items can sometimes cause bad feelings or infighting between family members. This contention has even broken families apart.

Usually state law does not require such lists to be attached to the will and the list may not even require the help of a lawyer if there is no will. Giving copies of the list to the recipients should be sufficient enough intent for family members to respect final wishes. If the person making the list is concerned that family members will not respect his or her wishes, he can legalize this list. The list will be treated as a legally binding holographic will if it is created in the maker's own handwriting, dated and signed and a declaration is made that the maker is of sound mind to devise such a list. Certain trusted family members will be given a copy of this will and instructions to petition the probate court if other members of the family refuse to respect the intent of the distribution.

In some states, a holographic will must also be witnessed. To be safe, always have at least two witnesses sign a holographic will and have it notarized for the signatures.

Probate

Probate is the process by which a will is legally verified and implemented. This is done by a special court system called the probate court. Probate is necessary even for somebody dying without a will, because as we have discussed previously, the state will provide a will of its own based on intestate laws.

There is a process that is followed and outlined by state law. Through this process the decendent's property and assets are gathered and accounted; debts, creditors and estate taxes are paid, and the remaining property, assets and cash are distributed to the beneficiaries.

The court names an executor or in some states called a personal representative to carry out this process. The personal representative is under the supervision of the court and is entitled to be reimbursed for his or her involvement. Not only does the executor take care of all the details listed above but must also often locate heirs who have long since disappeared. Sometimes, this process can take years

In an earlier era in our country, probate was an important process of making sure that the assets were distributed properly. Nowadays, assets can be distributed in a variety of ways that avoid the whole process. Oftentimes, probate is only necessary for those individuals who have failed to do thorough planning for distributing their assets after death. In other words, probate is often a result of poor planning. There are however, some advantages to the process. Here are some of them.

• It provides for an orderly transfer of assets in an open manner, approved by the court and can help avoid or solve family disputes.
• The validity of title of the transferred assets is not in question .
• Creditor's claims against the estate can limited -- possibly 3 to 6 months -- while creditors claims against other arrangements such as an irrevocable trust could go to the end of the statute of limitations which might be many years.
• The estate, while in probate, is a separate tax entity. Prior planning may afford some tax savings.
• As discussed above, the probate court is necessary to make sure the surviving spouse, who has been disinherited or who receives an unfair share, receives an "elective share" or equitable distribution of the deceased non-community spouse property.

There are many arguments against the probate process. Here are the most common.

• In some states, probate is very expensive because it requires hiring an attorney.
• Probate is time-consuming and could take at least a minimum of six months up to a year or more.
• Probate is a matter of public record and anyone can access the record. This can often result in unwanted solicitations from financial practitioners, estate liquidators or real estate agents.
• In those 13 states where Medicaid recovery can only be accomplished through the probate court, avoiding probate will avoid the recovery.

It should be noted that over the years, states have recognized the disadvantages of probate and have greatly simplified the process. In many states, it is less costly to go through simplified probate than to hire an attorney to come up with alternatives such as the commonly promoted "living trust."

Some states have adopted the Uniform Probate Code which in turn has greatly simplified the probate process and provided alternatives to retitling assets that bypass the court. A number of other states have also adopted a number of the simplified provisions of this code without adopting the entire set of rules.

In all states, a certain value of property is exempt from probate regardless of how it is titled. The amount exempt might be different for real property. For instance in Arizona, an estate worth less than $50,000 does not have to go through formal probate, but real estate worth less than $75,000 goes through a simplified procedure. In California an estate less than $100,000 goes through simplified probate and automobiles do not count towards this amount. Real property less than $20,000 in California is exempt from probate and can be transferred through an affidavit.

The non-probate procedures typically involve producing a death certificate and proving the relationship to the deceased. The title is then reissued in the name of the person making the petition or the assets are distributed based on a signed affidavit.

In many states property such as motor vehicles, boats, and even mobile homes can be transferred without involvement of the probate court through an appropriate form provided by the division of motor vehicles.

The following property is subject to probate.

• title solely in the name of the deceased with no beneficiary arrangement
• title held as tenant in common

This property is not subject to probate.

• title that has a beneficiary option or other transfer at death option
• title held jointly in common with right of survivorship