Wills, trusts, intestacy, oof! Most people understand that having some sort of an estate plan is a good thing. However, many of us do not take the first steps to get that estate plan in place because we do not understand what happens to our assets if we don’t make a plan.
Here is what will generally happen if you die intestate (without a will or trust), with a will, and with a revocable living trust.
1. Intestate.
If you die intestate (without any planning documents like a will or trust), any jointly titled property will automatically pass to joint owners. This might include your jointly owned home with your spouse, your joint bank accounts, and so on. Any property owned in your individual name will need to go through probate court unless it is disposed of with a valid beneficiary designation (such as your IRA or 401k) or transfer on death titling instructions (for your home, car, or other titled property). As part of the intestate administration process, your family will either on their own or through an attorney file paperwork with the court listing your assets. They will be required to notify potential creditors of the estate that you have passed away so that they can seek to enforce their debts. Your mortgage company, car loan company, and credit card companies will all seek payment on balances you owed at the time of your death.
After that, state law will decide who gets what and when.
- For example, if your only heirs are your two children and you have not provided any instructions through a will or a trust, state law will mandate divvying up proceeds equally.
- If you have a spouse at the time you pass away without a will or trust, your spouse in Missouri will receive the first $20,000 of your individual assets and then half of the balance, with the remainder passing to your marital children (if any).
- In most cases, your adult children will receive their share immediately if they have attained legal adulthood (18 or 21 years, depending on the circumstances).
- For minor children, the court will appoint a conservator to manage the money for them until that child becomes an adult.
- If you die without a valid will or other guardianship document, the court will decide who raises your minor child after petition to the court from interested persons.
The bottom line? Dying intestate allows state law and the court to make all the decisions on your behalf, regardless of what your intent might have been. Intestacy proceedings are a public process.
2. Will.
If you die with a valid will, any assets not passing by joint titling or beneficiary designation will still go through the probate process. However, after creditors have been paid, the remaining accounts and property will go to whom you have named in your will.
- If you want to leave money to your children and name a guardian for the minor, the court will usually abide by your wishes.
- The same holds true if you specified that you wanted to give money to a charity, your Aunt Betty, or your neighbor.
- Keep in mind that creditors are still an issue as your death has been publicized. Even with a will, probate is still a public process.
The bottom line? While a court oversees the process, having a will allows you to tell the court exactly how you want your affairs to be handled. But, a public probate is still required for any assets not passing through joint titling or beneficiary designation.
3. Trust.
If you have created a trust, you have taken full control of your estate plan and your accounts and property. Accounts and property owned by the trust are not subject to the probate process, and one of the most important benefits of a trust is that the details and process of transferring accounts and property to the intended individuals is private.
In the trust, you will have named a trusted individual (trustee) to manage your affairs with specific instructions on how your accounts and property should be dispersed and when.
- One word of caution – a trust must be properly funded in order to bypass probate.
- Funding means that ownership of your accounts and property has been changed from your name individually to the name of your trust.
- Think of your trust as a bushel basket. You must put the apples into the basket for the basket to have any use, just like you must put your accounts and property into the trust for the trust to have any use.
You do still need a will (pour-over will) to get any accounts or property inadvertently or intentionally left out of your trust into the name of the trust. You will also still need a will to name guardians for a minor child following your passing, though this can also be accomplished for temporary/standby guardians during life in any document that is signed, notarized, and witnessed.
The bottom line? A trust allows you to maintain control of your accounts and property through your chosen trustee, avoid probate, and leave specific instructions so that your children are taken care of – without receiving a lump sum of money at an age where they are more likely to squander it or have it seized from them.
Importantly, these are only the most basic differences between dying intestate, with a will, or with a trust. Beyond these basic issues, there are many further considerations and differences as it pertains to the estate and income taxation of your estate, eligibility for Medicaid or other government benefits, asset protection for yourself or your heirs, and so on. Talk with an estate planning lawyer to understand the full scope of your options and benefits.
