Tuesday, May 24, 2011

You Have a Will - Whether You Know It Or Not!

If you are part of the approximately 70% of the U.S. population who does not have a formal Estate Plan of any kind, you may be surprised to learn that your Will has already been written for you.  If you die without formally executing a Will or a Trust, the California Probate Code determines who will inherit your property.  These laws - known as "intestacy laws" - are based upon often archaic assumptions about where you would have wanted your property to go had you taken the time and effort to create a formal Estate Plan.

If you were married at the time of your death, 100% of your Community Property - assets acquired during the marriage other than by gift or inheritance - will be distributed to your surviving spouse.  Separate Property - assets acquired prior to the marriage or by gift or inheritance - will likely be divided between your surviving spouse and your children or your parents.  For example, if you have one surviving child or one surviving parent, your Separate Property will be divided 50% between your surviving spouse and 50% to the one surviving child or parent.  If you have more than one surviving child, 1/3 of your Separate Property will be distributed to your surviving spouse and 2/3 of your Separate Property will be distributed to your children.

Occasionally, spouses who acquire Community Property may convert such assets into Separate Property for asset protection purposes, not realizing that if they do not have a formal Estate Plan, those assets may be divided between the surviving spouse and the deceased spouse's surviving children and/or surviving parents, rather than passing 100% to the surviving spouse.

Assets not passing to a surviving spouse will generally be divided equally between the children, if any, and if not to the surviving parents, if any, and if not to the decedent's siblings.  The Probate Code goes on to describe additional contingencies beyond siblings such as cousins, grandparents, etc. 

In addition, the Probate Code will not factor in whether a child is on public benefits, is financially immature, or has creditor problems - issues that proper planning can address.  Finally, this entire process will be subject to probate, a time consuming and court-supervised process that oversees the distribution of assets upon death. 

It's best to take control of your planning by creating a formal Estate Plan to avoid the unnecessary uncertainly, unintended consequences, and complications that can result by allowing the California Probate Code to "draft" your "Estate Plan."