Fong Law Group

Biden Administration May Spell Changes to Estate Tax and Stepped-Up Basis Rule

A new administration usually means that tax code changes are coming. While it remains unclear exactly what tax changes President Biden’s administration will usher in, two possibilities are that it will propose lowering the estate tax exemption and eliminating the stepped-up basis on death. The first would affect only multi-millionaires, but the second could have an impact on more modest estates and their heirs. 

In 2017, Republicans in Congress and President Trump doubled the federal estate tax exemption and indexed it for inflation. For the 2021 tax year, the exemption is $11.7 million for individuals and $23.4 million for couples. As long as your estate is valued at under the exemption amount, it will not pay any federal estate taxes, and the vast majority of estates do not owe any tax. President Biden has expressed an interest in lowering the estate tax exemption. It could be more than halved to $5 million or even reduced to the previous exemption of $3.5 million for individuals. 

Another possible tax change is to how property is valued when it is passed on at death. "Cost basis" is the monetary value of an item for tax purposes. When determining whether a capital gains tax is owed on property, the basis is used to determine whether an asset has increased or decreased in value. For example, if you purchase a stock for $10,000, that is the cost basis. If you later sell it for $50,000, you will have to pay taxes on the $40,000 increase in value. 

Under current law, when a property owner dies, the cost basis of the property is "stepped up." This means the current value of the property becomes the basis. For example, suppose you inherit a house that was purchased years ago for $50,000 and it is now worth $250,000. You will receive a step up from the original cost basis from $50,000 to $250,000. If you sell the property right away, you will not owe any capital gains taxes.

According to an article in the New York Times, the current administration may propose to eliminate the basis step-up rule. In the past it was difficult to determine the original cost basis of some property, but in the digital age that information is more easily gathered. The change could result in tax increases for some people inheriting property that has risen significantly in value. 

Another question is whether either of these changes will be made retroactively. It is unlikely, but possible, that if Congress changes these rules later in the year, they could be made retroactive to the first of the year. 

If you are concerned about these rules changing, a trust may be a good way to protect your estate. Property in a trust passes outside of probate, and there are specific types of trusts that are designed to protect assets against estate taxes and capital gains. Talk to your attorney to determine if a trust is right for you. 

Tax experts agree that while changes to the tax code are likely, they probably won’t happen right away. The coronavirus pandemic and the recession it has triggered mean that Congress has other priorities at the moment. 

Who Should Purchase Long-Term Care Insurance?

Buying long-term care insurance is one way to protect against the high cost of long-term care. However, this type of insurance may not be for everyone, so consider all your options.

Long-term care – care in a nursing home or at home -- may be paid for in four main ways: 

• Out-of-pocket. If you have sufficient resources, you can pay for your long-term care needs with money you have saved. 
• Medicare. Medicare covers short-term nursing home stays after an illness or injury that requires hospitalization. Medicare covers up to 100 days of "skilled nursing care" per illness. 
• Medicaid. If you have limited resources, Medicaid will pay for nursing home care. In order to be eligible for Medicaid benefits a nursing home resident may have no more than $2,000 in "countable" assets (it may be higher in some states). 
• Long-term care insurance. With long-term care insurance, you pay monthly premiums to buy a policy that pays your long-term care costs if you are admitted to a nursing home or need home care (depending on the policy). 

Determining whether you need long-term care insurance depends, in part, on your financial situation. The cost of a long-term care insurance policy varies considerably, depending on your age when you purchase the policy, the benefit period, and the level of benefits, among other things, but the premiums can be expensive. Therefore, if you have the resources to self-insure your long-term care and still have money left over, you likely don’t need to buy a long-term care policy. On the other hand, if you cannot afford to pay monthly long-term care premiums, you will likely be able to qualify for Medicaid. 

Another factor to consider is your family’s health history. Most nursing home stays are short-term and paid for by Medicare. A common reason for needing extended long-term care is dementia. If you know you have a family history of Alzheimer’s disease, for example, it may make more sense to buy insurance. 

Of course, we never really know what the future may bring. Long-term care insurance is like any insurance policy: we don’t know if we will ever need it. In general, long-term care insurance is something to consider if:

• you have the resources to pay the premiums, even in retirement,
• you want to preserve your estate for your heirs, and
• you don’t have enough money to self-insure.

Where There’s A Will, There’s a Better Future for Family

“Often people are under the misconception that a will is only necessary if a person has a lot of assets, is wealthy, or has a complicated financial planning program in place.”

The plain truth is, everyone needs a will. The value of someone’s personal property has very little to do with the need for a will or estate plan. Without one, the process of settling an estate and having heirs receive their inheritance could be delayed for many months, or even years, says the article “Where there’s a will, there is a plan in place” from The Advertiser. For wills to be legally acceptable, there are certain things that need to be included:

Identification of the person making the will, also known as the testator. The will must contain the person’s name, address, state their intention to create a distribution process for assets and the statement that this will is intended to be their last will and testament and all other wills are revoked. The will must also be dated to be sure to know hold old it is, with regard to other wills.

Outstanding debt payment. The will needs to explain how any outstanding bills will be paid, including funeral costs, medical costs, taxes owed, and any other expenses that a person may have at the time of their death. This may vary by state, so speak with a local estate planning attorney to find out what your state’s laws are.

Name any heirs and what they are being given. You may give your property to whomever you want, or to a charity. The bequest needs to be carefully written, so it is very specific and there are no misunderstandings. Since it may be hard to know what will be left after final expenses are paid, it may be wise to give percentages of assets, rather than specific figures. An estate planning attorney will know how to best handle this aspect of a will.

Chose an executor and name them in the will. The executor is responsible for carrying out the wishes of the testator and is in charge of paying debts, taxes, distributing assets and any tasks assigned in the will. Choosing the right person for this task is very important. They need to be able to handle the responsibility and be able to execute your wishes, without being bullied by family members or friends. Always name a secondary executor, in case the first predeceases you, or if the person is unable or unwilling to serve.

Name a guardian for minor children. This is why parents of young children must have a will. If there is no will, the court will determine who should raise the children, following the laws of kinship of your state. You may not agree with the court’s decision. Select a person (or couple) you believe will raise the children, as close as possible to how you would raise the children.

Plan for your funeral. This is a kindness to your loved ones. If you don’t plan in advance, your loved ones may spend more than you would wish on an elaborate funeral. The opposite may also happen. A simple paragraph may do the job, or you could visit the local funeral home and prepay, selecting everything so that it will be done according to your own wishes.

In addition to a will, you’ll want a power of attorney and health care power of attorney in place to protect you, in case of incapacity. This way, someone will be able to take care of your finances and someone else will be able to make health care decisions, if you can’t.

An estate planning attorney can work with you to make sure that all these documents are properly prepared according to your state’s laws.  They have worked with many others, know what kind of issues crop up and how to prepare for them. This is especially important with blended families or families where there are complicated histories. Think of the estate plan as a gift to your heirs, a chance to express your wishes and a way to create a legacy for your loved ones.

Reference: The Advertiser (March 10, 2019) “Where there’s a will, there is a plan in place”

Making an IRA Part of the Estate Plan

“You’re hoping to leave your loved ones a nice legacy and something that can enhance their financial security or help them achieve special goals. Have you considered how your individual retirement account (IRA) fits into your estate plans?”

Most people use their IRAs (Individual Retirement Accounts) for retirement income. However, a lucky group find themselves not needing the money from their IRA accounts. Instead, the assets become part of a legacy that they leave to heirs. That is why most IRA accounts include the name of a beneficiary who could inherit these accounts, when the owner passes away, reports the Oakdale Leader in the article “Leaving An IRA As An Inheritance.”

If no beneficiary is named, things can get complicated for both the estate and the heirs. If the IRA has a named beneficiary, but the will names someone else to receive the IRA, the beneficiary named in the IRA is the one who receives the asset. The named beneficiary in any account and especially an IRA, supersedes the will, in almost every instance.

Anytime there is a significant event, often called a “trigger” event, like a divorce, marriage or birth, the estate plan and all accounts with named beneficiaries should be reviewed. This is to ensure that the assets go where the owner wants them, and not to an unintended heir, like an ex-spouse.

There are special rules for spouses, where IRAs are concerned. Married couples typically name each other as beneficiaries on their IRAs. A surviving spouse has certain decisions to make, when inheriting an IRA. The IRA may be rolled over into a new or existing IRA in the spouse’s own name. Taking this route depends upon the age of the spouse and the need for the money.

Another option is to convert the inherited traditional IRA into a Roth IRA. However, taxes must be paid on the conversion. It is also possible to transfer the IRA assets into an inherited IRA. An estate planning attorney will be able to explain all the options and how they will work with the surviving spouse’s estate plan.

To maximize the growth of the IRA, children or grandchildren can be named as IRA beneficiaries. They will need to start taking annual Required Minimum Distributions (RMDs) immediately, and the distributions will be taxable. However, the amount of the RMD will be based on their anticipated lifetimes, so the taxable distributions will be relatively small. The money in the account will have many years to grow.

When children or grandchildren are named as contingent beneficiaries, a surviving spouse has the option to disclaim the IRA, which allows the children or grandchildren to inherit the IRA and enjoy the tax-free years of growth.

Many advisors counsel against naming an estate as a beneficiary, because it helps avoid probate and strict distribution time limits.

Reference: Oakdale Leader (February 19, 2019) “Leaving An IRA As An Inheritance”

How Does a Life Estate Deed Work for an Executor?

“I am the beneficiary on my father's life estate deed of his home. He passed in October 2018. I am wanting to sell the house and have not filed a warranty deed to put the house in my name. Also, the life estate deed is via power of attorney because my father had Alzheimer's and at the time of the preparation of the life estate deed, would not have been considered able to make such a decision.”

What should this person do next? What is allowed and what is not? This complex question is addressed in My San Antonio’s article, “Life estate deed by agent must preserve estate plan.” First, let’s clarify what a life estate deed is, and why it was used in this person’s estate plan.

A life estate deed is a real estate ownership arrangement, by which the owner gifts or sells to someone, in this case to the beneficiary child, a “remainder interest” in a piece of real estate property. The owner of the property holds a “life estate” in the real estate, which includes the right to live in the property, use it and even profit from it, as long as the life estate holder is alive. The remainder interest holder, the heir, can’t interfere with the life estate holder’s use of the property, while they are living.

The remainder interest holder does have an ownership interest in the property, which is granted in the life estate deed. The IRS publishes a table so that the value of the remainder interest can be calculated. Here’s why that matters:

• If the remainder is gifted, then the IRS table determines the gift tax amount.
• If the property is sold while the life holder is alive, the proceeds are split with the remainder holder, with the value determined from the IRS tables.
• If the life estate holder needs to apply for Medicaid, the gift value of the remainder will cause a disqualification.

If the life estate holder decides to sell the property, permission from the remainder holder is required. The life estate holder may not have to pay taxes, but the remainder interest holder is likely to owe capital gain taxes, if the property is sold.

There is a special type of estate deed which changes the description above. Known as an enhanced life estate deed, or a “lady bird deed,” the owner is given the right to cancel the deed at any time. Since there is no value transferred to the remainder holder, there is no gift tax, no disqualification from Medicaid and the life estate holder can sell without needing to obtain permission from the remainder holder.

In the example above, the father did not sell his life estate interest, but retained it until the date of his death. The first challenge is proving ownership of the property. The original life estate deed should be proof of the ownership, but it must be combined with proof of death. The official death certificate will be needed to be presented to the title company, which will establish ownership under the original life estate deed.

The Alzheimer’s diagnosis creates another hurdle. Title companies are cautious when circumstances could be interpreted as self-dealing. They may ask if the agent had preserved the principal’s estate plan. In other words, did the father’s will give the house to the agent or to someone else? The agent may not act in a way that violates the existing estate plan. The durable power of attorney must be recorded with the county clerk for the life estate deed to be valid.

This is a situation where a qualified estate planning attorney will be able to ensure that proper measures are taken to protect the heir, as well as the estate.

Reference: My San Antonio (Feb. 11, 2019) “Life estate deed by agent must preserve estate plan”

 

What is a Failed Testamentary Transfer and How Do I Prevent it From Happening?

“What then happens when gifts made in a testamentary instrument, such as a will or a trust, lapse (fail) because the beneficiary is either deceased or is deemed to be deceased (such as with an ex-spouse)?”

The goal of any estate plan is to avoid “intestacy” — that is, when all or some of a person’s estate goes to their surviving heirs, and not to beneficiaries who were named in the decedent’s will or trust. After all, that was the point of having a will in the first place, wasn’t it?

However, as reported in Lake Country News’ article “Estate Planning: Failed Testamentary transfers,” things don’t always work out as planned. If the beneficiary is unable to receive the asset, the best possible situation is for the asset to go to an alternative beneficiary. That’s why every will, trust and any asset of any kind with a beneficiary designation should have an alternative or secondary beneficiary.  However, what happens when there’s no such person named?

If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.

The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.

Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).

The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.

The share for Phil’s two kids is split equally between the two boys.

This division of assets is a statutory response to what can happen when children do not live longer than their parents.

When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.

When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate.

Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.

While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries in your will. Life has a way of surprising us. If your will is not up to date, your assets may not go to the people you had intended.

Reference: Lake Country News (Jan. 26, 2019) “Estate Planning: Failed Testamentary transfers”

Thinking about Giving It All Away? Here’s What You Need to Know

“You can make a big impact, after you’re gone.”

There are some individuals who just aren’t interested in handing down their assets to the next generation when they die. Perhaps their children are so successful, they don’t need an inheritance. Or, according to the article “Giving your money away when you die: 10 questions to ask” from MarketWatch, they may be more interested in the kind of impact they can have on the lives of others.

If you haven’t thought about charitable giving or estate planning, these 10 questions should prompt some thought and discussion with family members:

Should you give money away now? Don’t give away money or assets you’ll need to pay your living expenses, unless you have what you need for retirement and any bumps that may come up along the way. There are no limits to the gifts you can make to a charity.

Do you have the right beneficiaries listed on retirement accounts and life insurance policies? If you want these assets to go to the right person or place, make sure the beneficiary names are correct. Note that there are rules, usually from the financial institution, about who can be a beneficiary—some require it be a person and do not permit the beneficiary to be an organization.

Who do you want making end-of-life decisions, and how much intervention do you want to prolong your life? A health care power of attorney and living will are used to express these wishes. Without these documents, your family may not know what you want. Healthcare providers won’t know and will have to make decisions based on law, and not your wishes.

Do you have a will? Many Americans do not, and it creates stress, adds costs and creates real problems for their family members. Make an appointment with an estate planning attorney to put your wishes into a will.

Are you worried about federal estate taxes? Unless you are in the 1%, your chances of having to pay federal taxes are slim to none. However, if your will was created to address federal estate taxes from back in the days when it was a problem, you may have a strategy that no longer works. This is another reason to meet with your estate planning attorney.

Does your state have estate or inheritance taxes? This is more likely to be where your heirs need to come up with the money to pay taxes on your estate. A local estate planning attorney will be able to help you make a plan, so that your heirs will have the resources to pay these costs.

Should you keep your Roth IRA for an heir? Leaving a Roth IRA for an heir, could be a generous bequest. You may also want to encourage your heirs to start and fund Roth IRAs of their own, if they have earned income. Even small sums, over time, can grow to significant wealth.

Are you giving money to reputable charities? Make sure the organizations you are supporting, while you are alive or through your will, are using resources correctly. Good online sources include GuideStar.org or CharityNavigator.org.

Could you save more on taxes? Donating appreciated assets might help lower your taxes. Donating part or all your annual Required Minimum Distributions (RMDs) can do the same, as long as you are over 70½ years old.

Does your family know what your wishes are? To avoid any turmoil when you pass, talk with family members about what you want to happen when you are gone. Make sure they know where your estate planning documents are and what you want in the way of end-of-life care. Having a conversation about your legacy and what your hopes and dreams are for family members, can be eye-opening for the younger members of the family and give you some deep satisfaction.

Reference: MarketWatch (Oct. 30, 2018) “Giving your money away when you die: 10 questions to ask”

Here’s Why You Need an Estate Plan 這就是為什麼你需要一個資產計劃 (中英對照)

“Dying without a will basically means that you give up having control over who gets your property after your death and who will be the guardian of your minor children.”

Many celebrities die without wills. This past year saw a host of celebrity estate snafus. It’s as if they were sending a message from beyond that they didn’t care about how much turmoil and family fights would take place over their money and assets. Some of these battles go on for decades. However, as reported in Press Republican’s article “The Law and You: Important to make a will,” even if you think you don’t have enough property to make it necessary to have a will, you’re wrong. It’s not just wealthy or famous people who need wills.

Do you really want other people making those decisions on your behalf? Would you want the laws of your state making these decisions? Your family will do better, if you have a will and an estate plan.

For example, in California, if you don’t have a will or trust, your surviving spouse will inherit half of the estate and your child will inherit the other half.  If you have more than one child, your spouse will inherit only 1/3 of the estate and the remainder of the estate will be divided equally among your children whether they are minors or adults.

If you have a spouse but no children, your spouse will inherit everything. If you have children and no spouse, then the children get everything, divided equally.

If you have no spouse, no children and living parents, then your parents will inherit everything you own.

If your parents are not alive, your siblings will get it all.

Adopted children are treated by the courts the same as biological children, when there is no will. Stepchildren and foster children do not inherit, unless they are specifically named in the will.

If you have been in a long-term relationship with someone and never married, even if they qualify for health care benefits from your employer under the “domestic partner” provision, they are not considered a spouse when it comes to inheritance. At the same time, if you are not legally married and your partner dies, you have no legal right to inherit from your partner’s estate. No matter how long you have been together, how many children you have together, if you are not legally married, you have no inheritance rights.

Check your state’s laws for the rights of “common law marriages;” California does not recognize these as a legal union. In very limited cases, New York State has been known to recognize common law marriages from other states where they are legal, but that is the exception and not the rule. There are limits here as well: both parties will have to agree to be married, must represent to others that they are married and may not be married to anyone else.

If you want someone who is not your legal spouse to receive your assets, you need to meet with an estate planning attorney and have a will drawn up that meets the requirements of the laws of your state. An estate planning attorney will be able to explain how your state laws work and what provisions are and are not acceptable in your estate.

An estate planning attorney will also help you consider other issues. Do you want to leave anything to a charity that matters to you? Do you want anyone else besides your children to receive something after you pass? Is there anyone who needs a trust, because they are unable to manage their finances, or you are concerned about their marriage ending in divorce? Making these decisions in a properly prepared will, can protect your family and lessen the chances of your wishes being challenged.

Reference: Press Republican (Dec. 18, 2018) “The Law and You: Important to make a will”

“在去世時沒有遺囑基本上等於你放棄了在你去世後由誰獲得你的財產以及誰將成為你未成年子女的監護人的控制權。”

許多名人於去世時沒有遺囑。在過去一年中，我們看到許多名人的資產糾紛。就好像他們並不關心資產會引起多少動盪和家庭爭鬥的信息。其中一些紛爭持續了數十年。然而，正如Carroll County Times的文章 “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?” 所述，即使你認為自己並不富有所以沒有立遺囑的必要，那你錯了。不是只有富有的人或名人才需要遺囑。

你真的希望由其他人代表你做出這些決定嗎？你想要你所在的州的法律作出這些決定嗎？如果您有遺囑和資產計劃，您的家人會更好。

例如，在加州，如果您沒有遺囑或信託，您的在世配偶將繼承遺產的一半，您的子女將繼承另一半遺產。如果您有一個以上的子女，您的配偶將僅繼承遺產的三分之一，而遺產的剩餘部分將平均分給您的子女，無論他們是未成年還是已成年。

如果你有配偶但沒有子女，你的配偶將繼承一切。如果你有子女而沒有配偶，你的子女將平分你的一切。

如果你沒有配偶，沒有子女，那麼你的父母將繼承你的一切。

如果你的父母已去世，你的兄弟姐妹將會得到所有。

在沒有遺囑的情況下，收養的子女跟親生子女在法律上受到一樣待遇。繼子女和寄養孩子不會繼承，除非在遺囑中說明。

如果您與某人建立了長久關係但並從未結婚，即使他們根據“家庭伴侶”條款他們有資格從您的雇主那裡獲得醫療保健福利，但在繼承方面，他們並不被視為配偶。同時，如果您們沒有合法結婚而您的伴侶去世了，您沒有合法權利繼承您伴侶的遺產。不論你們在一起有多久，你們有多少子女，如果你們沒有合法結婚，你就沒有繼承權。

查看您所在州的法律是否適用“普通法婚姻”。加州不承認這些是合法結合。在非常有限的情況下，眾所周知，紐約州承認來自其他州的普通法婚姻，但這是例外，而不是規則。這裡也有限制：雙方必須同意將來會結婚，必須向他人表示他們已婚並且不得與其他人結婚。

如果您希望不是您的合法配偶得到您的遺產，您需要與資產規劃律師會面，並製定符合您所在州法律要求的遺囑。資產規劃律師可以向您解釋州法律是如何運作以及有哪些法律條文對您資產計劃是可接受及是哪些不可接受的。

資產規劃律師也會幫您考慮其他問題。例如你想把一些東西留給對你很重要的慈善機構嗎？你希望除了你子女以外的人在你去世後獲得什麼嗎？有沒有人需要信託，因為他們無法管理自己的財務，或者你擔心他們的婚姻最終離婚收場？在準備好的遺囑中做出這些決定，可以保護您的家人並減少您的意願受到質疑的機會。

參考: Press Republican (Dec. 18, 2018) “The Law and You: Important to make a will”

What if Your Heir Dies Before You?

“Your will may provide how the estate should be distributed, if one of the legatees dies before you. If not, you can change your will to reflect how you want the estate divided, after the loss of your child.”

The idea of a child dying before a parent is a heartbreaking thing to consider. However, these sad events do take place. The difficulty of discussing this might lead you away from thinking about it when doing your estate plan, but that’s not a productive response. The article “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?” from Carroll County Times tackles this topic without flinching.

First, review your will with your estate planning attorney to see if your will has already made a provision for this event. Your will should be reviewed from time to time anyway, especially when there has been a major tax law change. If there is nothing in your will currently addressing this situation, you can change the will to what you would want to happen.

If you don’t make this change and a child predeceases you, the laws of your state will govern what happens.

In Maryland, the law of the Estates and Trusts Code says that your child’s estate will still receive the share you had designed in your will, regardless of whether they died before you. Therefore, whoever is an heir to your child’s estate, will receive what your deceased child was awarded in your will.

The law also states that the legatee—your deceased child—must be identified in the will to receive whatever share of your estate you directed. If you don’t want to leave a portion of your estate to the heirs of your deceased son or daughter, you must specify exactly how you want your estate to be divided, if one of your children should die before you do.

Is it worth getting into these specifics? Yes. For one example, if you’ve had a bitter feud with a son-in-law for decades and you don’t want to leave him anything, then you’ll want to make sure to specify that in your will.

Each state has its own laws governing what occurs when an heir predeceases the parent. For example, in the past in Maryland, a legatee’s right to receive a share of the estate did not enjoy any protection, if he died before the author of the will. If the will did not contain specific directions on how that share should be distributed if the legatee died before the author of the will, the share simply remained in the estate, and the legatee’s heirs did not receive any assets.

Speak with a local estate planning attorney to clarify what would happen to your assets and what you would like to have happen.

Reference: Carroll County Times (Dec. 21, 2018) “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?”

Who Will Be Your Heir? Don’t Leave Room for Surprises

“However, as with most things, a will’s value is relative; it largely depends on your unique circumstances.”

“Intestate” is the term used to describe the estate of someone who dies without a will. Each state has laws called “intestacy laws” that govern how probate assets are distributed, if someone dies without having a will. These laws establish the inheritance hierarchy based on a person’s family structure. As explained in The Daily News’ article “’Are You My Heir?’-Who Inherits When You Die Without a Will,” all of your assets will pass to your next of kin, also known as your “heirs-at-law” or heirs in accordance to the state’s laws of intestacy.

Here’s one example: if you are married but have no children and no grandchildren, your estate will be passed to your spouse. If two people die and there are no descendants (children or grandchildren), their parents, if living, will inherit their assets. A child who is legally adopted has the same rights of inheritance as biological children. Children born outside of the marriage may not.

If a child should predecease a parent, the living descendants of the child (if there are any) will inherit their share.

In some states, heirs are limited to family members who share the same grandparents. If your family is not geographically or otherwise close, you may have heirs you have never met.

Intestacy can become extremely complex, when there are children and grandchildren. Descendants inherit from their parents and grandparents in percentages dependent upon the total number of children and the number of children in each generation that follows.

If a grandfather has three adult children who are living and one adult child who has passed, then the estate will be divided by three—a third each to each of the two living children and the final third to the grandchildren of the third (deceased) child. The children of the deceased child are heirs, even if the parent has died.

Add non-marital children—children born outside of a legal marriage or step-children—and things start to get complicated. A court will have to determine the intestate inheritance, based on proof that the child is a descendant and if that relationship is established in a timely manner.

If the father’s name is on the child’s birth certificate, that is generally enough proof of the relationship. It doesn’t matter if they have a close relationship or have never met. The same applies to marital children—whether they have been close and caring or are estranged.

It’s best to have a will and an estate plan, so you can decide your heirs. You are also sparing your loved ones the emotional rollercoaster of family surprises. Make an appointment with an estate planning attorney to take care of this important matter.

Reference: The Daily News (Sep. 7, 2018) “’Are You My Heir?’-Who Inherits When You Die Without a Will”