Many people think that if they die while they are married, everything they own automatically goes to their spouse or children. They're actually thinking of state rules that apply if someone dies without leaving a Will. In legal jargon, this is referred to as “dying intestate.” In that case, the specifics will vary depending on each state's law, so where you live when you die can significantly change the outcome for your family.
In California, the rule is that your surviving spouse will inherit all your community property plus ½ or 1/3 of your separate property. The children will get the other ½ or 1/3 of your separate property, divided between them. The division of the separate property by 1/3 to spouse and 2/3 to children occurs when you have two or more children, otherwise is ½ to spouse and ½ to your only child (of course, there are many more details to California's laws regarding the division, but I want to focus on the big picture). Now, it may seem like, "So far, so good." Your spouse is getting an inheritance, so are the kids. But here are some examples of how the laws can fail many common family situations.
First off, the amount that your children will inherit depends on the amount of separate property you have at death. In California, all property and earnings acquired during marriage are community property, with few exceptions, such as an inheritance. But maybe, you (like many other couples) entered marriage without separate property. So, it is conceivable that you could die owning only community property, in which case, there is nothing that your children would be able to inherit. Plus, should your surviving spouse ever remarry, then also die intestate, and before the new spouse, there is another disappointment to your children. The new spouse is going inherit a portion of his/her deceased spouse's separate property (which was acquired during the first marriage) and that will leave less for your children to inherit. The worst-case scenario is where your spouse has made an estate plan after the remarriage and decides to leave everything to the new spouse, disinheriting your children entirely.
Second, if both parents of minor-aged children die intestate, the children are left without a legal guardian. Kids don't automatically go to a godparent, even if that's what everyone knew the parents had intended. Instead, a probate court appoints someone to be the children's guardian. In such situations, the judge seeks to act in the children's best interests and will consider the petition or petitions of whomever asks the court for the job. Also, the court gives preference to relatives, but the final decision is up to the court, and the judge may not make the decision that you, as a parent, would have made.
Many Californians have been remarried, and – through adoption and stepfamilies –millions of children are living in blended families. The laws haven't kept up, and absurd results can occur if you rely on intestacy as your estate plan. Stepchildren and foster children that you helped raise (but didn't legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may still inherit from you. Of course, with an estate plan, you can control who gets to inherit from you and essentially eliminate the risk of these crazy results.
Intestacy provides no asset protection either. Without any protections in place, an estate's assets are still vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family may not receive the lion's share of the estate. They'd get the leftovers.
The best way to safeguard your family and pass along what you've worked so hard to build is to have an estate plan in place. If you would like to start a conversation with Attorney Shawna Murray, just call or use the contact form right here.