If you die living in Texas and have not done any estate planning, you have died “intestate”. So, what happens to your assets if you die intestate? Well, the answer is both simple and complex. It is simple from the perspective that there are laws on the books which dictate who receives your property. It’s complex from the standpoint that exactly who “who” is depends on your specific situation. I’ll try to explain the laws as clearly as I can, but first allow me to explain exactly which assets would be subject to these laws (which are called “intestacy” laws).
It’s important to understand that assets passing through intestacy or passing by the terms of a will must go through the probate process. That means court costs, judges, fees, delays, and some level of public exposure.
Assets that pass pursuant to intestacy laws include all assets which would have passed via your will if you had one. I realize that doesn’t provide much clarity. Perhaps it’s easier to describe which assets do not pass through a will. They include assets held in a trust, as well as assets with effective beneficiary designations, such as a life insurance policy. If you own a life insurance policy, you can designate any person or organization as the beneficiary of that policy. By doing so, when you die, that beneficiary will receive the death benefit if they survive you. If the primary beneficiary does not survive you, there may be a contingent beneficiary named. In that case, that contingent beneficiary would receive the insurance policy proceeds.
Another example of property that does not pass through a will is a checking account that has a “payable on death” designation added to it. By operation of your passing, the individual or entity that you designate on that account would be the recipient of the account proceeds. Savings accounts, investment accounts, CD’s, money market accounts, and other similar accounts can all have “payable on death” designations added to them.
Looking at those same types of assets (a life insurance policy or financial accounts), if there are no beneficiaries or designees listed (or if the beneficiaries or designees do not survive you), that property will pass through your will if you have one. For purposes of this writing, you don’t. So, they would pass pursuant to the intestacy laws.
Here’s where things can get confusing. The intestacy laws state as follows:
If you die, are not married, and do not have any children, all your assets go to your parents if they are both living. If only one of your parents is still living, that living parent receives one-half of your assets and the other one-half of your assets get divided equally among your siblings. If neither of your parents are living, all your assets are divided equally among your siblings.
If you die, are not married, and have children, your children receive everything in equal shares.
If you are married when you die, have no children, both your parents are gone, and you have no living siblings, your spouse receives all your assets.
If you are married when you die and have children (all of whom are also the children of your spouse), your spouse inherits all of your community property, 1/3 of your separate personal property, and the right to use your real estate for the balance of his/her life. Your children receive everything else.
If you are married when you die and have children who are not also the children of your spouse, your spouse receives ½ of the community property, 1/3 of your separate personal property, and the right to use your real estate for the balance of his/her life. Your children will inherit everything else (including your ½ of the community property).
If you are married when you die and do not have children and your parents are still living, your spouse receives all your community property, all your separate personal property, and ½ of your separate real property. Your parents receive the other ½ of your separate real property.
Finally, if you are married when you die, your parents have both died, and you have surviving siblings, your spouse inherits all your community property, all your separate personal property, and ½ of your separate real estate. Your siblings will equally divide everything else.
There are other scenarios which result in even more complicated distributions to subsequent generations of family members, but I think you get the idea that things can get quite complex.
Most people are not interested in leaving the distribution of their assets to these convoluted statutory schemes. At a minimum, they should have a Last Will & Testament that clearly describes who receives their assets, when they receive them, and under what conditions. Additionally, there should be contingencies built into a Will in case one or more beneficiaries predeceases them.
On significant component of planning that is not addressed in a Last Will & Testament is the issue of incapacity. Guardianship is a topic worthy of its own future article, but suffice it to say for now it is something that planners should prioritize as a risk to avoid.
A far better alternative is to use my Legacy Wealth Planning and a Family Trust which provides for orderly distribution of your assets to those you designate, upon your terms, and in complete privacy by avoiding probate. It also protects your assets from becoming subject to Guardianship and court involvement if you become incapacitated. Additionally, you will have the ability to protect up to half your assets from being swept away by a departing ex-spouse of your child if they should divorce. You can also protect your child’s inheritance for the long-term if they have struggles with drugs or alcohol or have proven to be financially irresponsible. Finally, you can protect your assets from ending up in the hands of strangers if your spouse remarries. It seems like everyone has heard of a nightmare story like that playing out.
The reality is that failing to properly plan can lead to catastrophic results. I tell people all the time about the Five P’s: Prudent Planning Prevents Preventable Pain! I haven’t even touched on the issue of what happens to minor children if mom and dad pass away without an estate plan -that’s yet another different topic that demands serious consideration.
No matter what, the right things to do for your own peace of mind and for the benefit of your loved ones is to work with a highly skilled attorney who can help you plan the right way. My practice focuses exclusively on estate planning and elder law matters, and I complete 36+ hours of continuing education annually in order to maintain membership with the American Academy of Estate Planning Attorneys (my firm is one of only seven in all of Texas belonging to this prestigious organization!).
Burgett Law Firm prepare plans that are suited to all ages, needs, and circumstances. Whether you’re single with no children, married with children (including special needs children), approaching retirement, or an elderly person facing nursing home care, we can help you and your loved ones obtain the same peace of mind that our clients always tell us they receive.
Contact us today so we can teach you how our Prudent Planning Prevents Preventable Pain. Visit our website at BurgettLawFirm.com to view important reports about a variety of topics and to see our upcoming FREE Seminars. Or feel free to call us at (254) 218-6288, or email the friendliest Client Care Specialist in Central Texas, Sara Burgett (my wife!), at Sara@BurgettLawFirm.com.