Estate planning is something you know you need but put it off to next month, which becomes next year, which becomes next decade. If you feel you procrastinate in this area, you are not alone. After all, estate planning is simply deciding what happens to your money after you die. That is not usually something we think about all day.
Whether you decide to tackle your estate plan on your own (not advisable for most estate planning) or seek the assistance of counsel, educating yourself on the topic crystallizes your goals allowing for fluid communication with your attorney to achieve the results you want and save time and money doing it.
This article is part 1 of a series of articles designed to get readers up to speed on the basics. The starting point in crafting an estate plan is generally understanding how your estate is distributed if you die without a will or an estate plan, which is the topic of this article.
Before we explore the topic, it is helpful to understand three common definitions related to the topic.
Intestate is the legal term for a person who dies without a will.
Probate refers to the legal process conducted by a court in dividing and administering one's estate. Probate is similar to a civil lawsuit. The court often calls witnesses, and depositions may occur. Probate always happens if the decedent dies, with or without a will.
An executor is a person either named in a will or appointed by the court, who has the legal responsibility of overseeing the probate process and distributing the estate's assets.
Community Property is property acquired by marriage partners, either individually or together, that is considered by law to be jointly owned and equally shared.
Separate property is property owned by one spouse which he/she acquired: a) before marriage, b) by inheritance, c) as a gift, d) assets traceable to other separate property such as money received from the sale of a house owned before marriage, and e) property the spouses agree is separate property.
Upon death, the decedent's money and assets must go somewhere. In the case of interstate, the decedent did not name an executor to accomplish this task. Thus, someone interested in the estate's assets (a spouse, child, or creditor) must petition a court to divide up the decedent's estate, commencing the probate process.
An important note here. The state of Nevada does not automatically initiate probate. Instead, an interested party must always initiate probate, regardless of how close that interested party is with the descendant or how large or small the estate is. For example, suppose a father passes away who is not married and has one daughter. Suppose the daughter and the decedent are very close. So much so that before his death, the father had his daughter manage his bank accounts and financial affairs. Although the father told his daughter that he would leave everything to her at his death, he never writes a will. After his death, the daughter may innocently believe there is nothing wrong with using her father's username and password to access his bank accounts to transfer money. However, if she does so, she is committing theft. That money belongs to her father's estate. Ownership to the daughter will only transfer once the probate court signs an order moving it to the daughter. Thus to place those funds in the daughter's name, she must file the estate in probate.
Probate can be time-consuming, expensive, burdensome on the surviving family, and usually requires the assistance of attorneys. Generally, the court will use the estate's assets to pay off any creditors the decedent may have had in the probate process. Any remaining funds are distributed in portions to the decedent's spouse, children, then to the parents (if no surviving spouse or children), and then to the siblings. (Intestate laws are complex, see NRS Chapter 134 for the specifics). The court will not consult the decedent's heirs on how they think the descendant would have wanted her assets to be divided. Instead, the court will apply the strict Nevada law formula.
Another important aspect involves the common scenario where a spouse survives the decedent. Technically, in this situation, the living spouse receives 50% of the decedent's estate if the decedent has one child. Suppose the decedent has a spouse and at least two children. In that case, the spouse receives one-third of the estate. The remaining is divided equally between the remaining children. However, Nevada is a community property state, meaning each spouse owns each other's property and money jointly and equally. Thus, none of the decedent's community property will pass to his or her children. Instead, the children will only receive a portion of the decedent's separate property (if there is any, not likely).
The additional details of intestate law are rather dull, and you don't need to know them. The point is simply to gain a general understanding of Nevada's default intestate laws. By now, you should realize some of the issues with dying intestate. Here are some typical issues:
What if you don't want your spouse to retain all your community property? While this issue isn't too common for happily married people who share the same children, it is much more of a problem for married couples who have step-children. For example, suppose you have three children in their teens and re-marry. In that case, you will probably want a significant portion f your estate to pass to your children, not just your spouse.
How will your funeral arrangements be made, and who will pay for it?
Interstate commonly causes conflict between the defendant's heirs on who gets what from the estate. Sometimes this forces otherwise friendly siblings into bitterness.
Unwanted attorney fees and costs associated with the probate process.
The burden left to the surviving heirs who must navigate the probate process.
These are just a few examples of many of the negative consequences that can and will arise from only relying on the default intestate rules. Fortunately, proper estate planning can eliminate or significantly reduce these types of issues. But even better, proper estate planning can create security and protection for your loved ones long after you pass away. We will explore these topics in the coming articles.