VOLUME 24 NUMBER 17
Even with regular prompting, about half of people never get around to completing even basic estate planning. If they never do get a will signed, we lawyers say that they have died “intestate”. But what does that really mean for their loved ones?
Note that the information we provide here is for Arizona residents. Not every state handles intestacy exactly the same way. You might see similarities with your state law, but do not rely on this information if you do not live in Arizona. Talk to a lawyer in your state about intestate succession.
So what does happen if a loved one has died in Arizona without a will? Might the government take some or all of their estate? Will probate be required? Could it be more expensive? How much trouble do you face if it is your family member who has failed to sign a will?
Keep in mind that there are taxes, and there are taxes. Arizona does not impose an estate tax (that is, there is no state tax on the estate of a person who dies in Arizona). Someone who dies in Arizona might, however, have an estate tax to pay in another state. Most often that can happen if they owned real estate in another state.
No state estate tax means that there is no increase in the (non-existent) tax on intestacy. Federal estate taxes are not directly affected, either.
Of course, the current high federal estate tax exemption (over $5 million) means that very few people need to worry about estate taxes. That doesn’t change if they have not written a will. There is no direct increase in estate taxes for someone who dies intestate.
For people worth more than the federal estate tax exemption, there are some techniques that might reduce the tax bill. Failure to plan might mean some tax savings are missed. Dying without a will suggests a failure to plan, so taxes might be higher than they needed to be.
There are also income taxes to consider. Some planning techniques can reduce the income tax liability for your heirs. If you haven’t planned enough to even sign a will, then you have probably not considered that tax savings. But just dying intestate does not, by itself, increase any income tax liability for your heirs, either.
Because your loved one died intestate, does that mean you will have to probate their estate? Not exactly.
There is a lot of confusion about the need for probate. Some laypeople believe that probate is required after every death — but it isn’t. In most cases no probate is necessary. Not having a will does not increase the likelihood of a probate proceeding.
Many of our clients start with the misconception that signing a will helps avoid probate. It doesn’t. Probate, in fact, is the court process by which the validity of your will is determined. But having a will doesn’t mean a probate is more likely, either.
The need for probate is based on whether the decedent had assets in his or her own name — without beneficiary designations, joint owners or trust titling. The probate process is not as onerous or expensive as most laypeople predict, and it doesn’t increase just because the decedent died intestate. But, again, the failure to prepare a will implies a more general failure to plan, and that can increase the complexity (and cost) of a probate. It can also increase the likelihood of a contested legal proceeding.
So what IS intestate succession?
In most cases, all intestacy means is that the decedent gave up the opportunity to decide how his or her property would be distributed. That, plus the ability to designate the person in charge (the “personal representative” or, as we used to say, the executor).
Arizona, like every U.S. state and most if not all other countries, has decided on a default distribution scheme. There is even a high likelihood that the state’s rules are very close to what your family member would have done if he or she had signed a will. Intestate succession tracks what most people are presumed to want, and of course most people do follow the most likely pattern.
What does that mean for your now-deceased family member? If he or she had a spouse, they will receive all of the estate (except in one case — see below). If there is no spouse, his or her children will share equally — and any deceased child’s share will be divided among his or her children. No spouse or children? Intestate succession looks to grandchildren or more distant descendants.
For people who left no spouse or issue at all, intestate succession directs that we look up a generation. In other words, parents inherit everything — and if they are both deceased, their children (the decedent’s siblings) are next in line. Next the rules look to nieces, nephews, and grandnieces and grandnephews.
If there are none of those, then grandparents and their descendants are the recipients of the estate. It’s pretty rare to find someone who has no spouse, children, siblings or cousins — but that’s what it would take for the estate to go to the state.
Special Rules of Intestate Succession
There are two important exceptions to this narrative — one large and one small. The smaller point to make is that there is a mechanism for the state to receive a share of the intestate estate if the heirs are known but can’t be located. The state holds their share in trust until they — or their descendants — make application for it.
The other exception is more important. It deals with situations where the decedent left a spouse and children, but at least one of the children is not a child of the surviving spouse. In that case, the decedent’s estate (effectively including community property) is split. Half of the decedent’s separate property goes to the surviving spouse. The rest (including all of the decedent’s share of community property) is divided among all the decedent’s children.
All of that means that it might not be a huge problem if your loved one died intestate. We wish they had done good planning, but the costs, taxes and probate will probably not be more complicated. Most importantly, they will have lost their chance to control the handling of their estate.