The first rule of financial planning is to make a will


#1

When we met with a financial advisor for the first time in 2011, the very first thing he told us was to make a will. Neither my wife or I had a will.

A will is a legal document you use to leave property to close family members, friends, or charities. In your will, you name beneficiaries to inherit your property, an executor to wrap up your estate, guardians to care for your young children, and caretakers to own and care for your pet. You can set up a trust for money inherited by children. You can also forgive debts owed to you and state how you want your debts, expenses, and taxes to be paid.

So I got some horrible pirated copy of will software (Quicken Willmaker?), and made one. At the time we only had one child, so everything goes to him, and now we’re covered I guess. At least the planner is off my back, anyway.

I was curious what happens when people die without a will, so I researched it. That’s called dying intestate. Sounds like the rules of the particular US state you live in apply, and if it the asset happens to be property in a different state, the rules of that state may apply as well.

With that caveat in mind, these are the general, common rules for intestate death. Assume “equal shares” when dividing amongst (x) relatives of the same class:

Single, no kids

  1. parents
  2. siblings
  3. relatives on each side, divided in half

Married, no kids

  • spouse*

* If the item is “separate property” and not “community property” it will be split between spouse, sibling, and parents.

In California, if you are married and you die without a will, what your spouse gets depends in part on how the two of you owned your property – as separate property or community property. Generally, community property is property acquired while you were married, and separate property is property you acquired before marriage. There are a couple of big exceptions: Gifts and inheritances given to one spouse are separate property, even if acquired during marriage.

Married, kids

  1. spouse, 100%* or 50%**
  2. children, 50%**

* If all children are the children of your surviving spouse
** If children are from a different spouse

Unmarried

direct relatives only, by strongest relation:

  1. children
  2. parents
  3. descendants of parents (siblings, nieces, and nephews)
  4. descendants of grandparents (aunts and uncles)

Domestic partners

  • If the state recognizes domestic partnership, same as spouse

So yeah – the main thing we’ve learned is that you really, really, REALLY don’t want to die without a will if you are not formally married. Once you are married in a form the state recognizes, the intestate rules seem… reasonable-ish… to me? I guess if …

  • you end up married to someone you hate
  • have kids you end up not wanting to be associated with post-death
  • have kids or ex-spouses from other marriages that need special treatment
  • want to give some of your estate to someone you’re not normally related to

… you’d need a special will to avoid the normal intestate rules. And it is generally a good idea to have a will; the financial planner wasn’t wrong.

Even the Willmaker software I used seemed like massive overkill at the time. Wills aren’t complicated; it’s basically one person describing what they want to happen with all the crap they collected in life after they die. Since I last researched this in 2011:

Sounds like you do need the document signed by observers though:

You need to sign your will in front of two adults who do not inherit under your will. These people don’t need to read the will, but each must sign it as a witness. Store this original document in a safe place, such as a fire-proof box.

TL;DR if you are not formally married but in a relationship, you definitely need a will. For everyone else, it’s a good idea, but you can safely ignore it if you are comfortable with the intestate rules where you live … though I have no idea how much those rules really vary from state to state.


#2

Reading the California specific rules, there are some hair-raising special case clauses:

  • Someone who “feloniously and intentionally” kills you will not receive a share of your property. (this is known as the “slayer rule”)

  • To inherit under California’s intestate succession statutes, a person must outlive you by 120 hours. So if you and your brother are in a car accident and he dies a few hours after you do, his estate would not receive any of your property.

  • Children conceived by you but not born before your death will receive a share. A child conceived with your genetic material within two years of your death will also receive a share if you left written permission for the material to be used.

  • Foster children and stepchildren you never legally adopted will not automatically receive a share. However, a foster child or stepchild can inherit if he or she can prove that: 1) your relationship with the child began while the child was a minor and continued throughout your lifetimes, and 2) you would have adopted the child if it had been legally possible.


#3

I wrote up a will a few years ago, and also set up a trust for my assets. According to the lawyer I was working with, it’s better to have both because you minimize the involvement of the courts. When your assets are in a trust, then the trustees are directly responsible for asset distribution once you’re gone. With a will, the executor has to go through a probate court in order to distribute assets. (Of course, if anyone wants to contest the distribution of the trust, the courts could still get involved.) At least, that’s the case here in Michigan…YMMV in other states/countries.


#4

One of the smartest things my mother did before she passed (but knew death was around the corner) was to add me as either a co-owner or signatory on her accounts. Saved me a lot of hassles later on.

The other smart thing was to have a current will drafted in her state of residence. Typically it helps to have more than a will. A lot of wills and estates lawyers offer packages that include a will, power of attorney, and a DNR (do not resuscitate, should that be what you want). It’s not a bad idea to have these things lined up.


#5

Basically if you’re single and don’t have kids, don’t worry about it.

Otherwise make a will.


#6

My experience with estates is not that the government is the worst part. Depending on the scenario, the family is often the worst part. However, it’s true the government adds overhead and thus decreases efficiency.

It’s one of the reasons that, contrary to popular belief, insurance based investments (life insurance and annuities are examples) can have a meaningful role in estate planning. These types of investments often pass to beneficiaries outside probate, typically within a couple weeks after a claim is filed with a death certificate. Yes, you could make more in the market than what an annuity pays. You could also lose it all, where an annuity can give protection from market risk, and it can provide funding to beneficiaries faster than waiting for any estate to be resolved. I would never recommend annuities as the only or a major part of a portfolio, but I do think about them differently after managing two estates.


#7

As a single parent, what terrifies me most is what will happen to my kid(s) in the case of my death. It’s my plan to get an estate lawyer to settle this (and the will, power of attorney, etc. as mentioned above) as soon as possible. It’s what keeps me up at night.


#8

I should probably will-up to protect my partner in case I bite it because I’m a giant lardass who refuses to exercise.

Though i mean all my stuff defaulting to my parents would then go to her, anyway, cuz I think they like her more than me at this point. . .


#9

Same with my mom. I wonder if that was some common advice back in the old days (she’d be 91 now)?


#10

Doing the preliminary stuff before it is to late is very smart. many people find it hard to give up the POA and allow another signer on a checking account until it is too late.

We did the will and trust thing about 15 years ago. One thing you need to do is get them updated from time to time as laws change and language changes.

You should also keep up with all your beneficiary designations. Most accounts and insurance policies have them so make sure they are up to date.


#11

True true. And also your assets and debts can change over time.


#12

I saw a terrible case like that once. It was a schizophrenic that killed both his parents because Jesus told him to do it or something to that effect. So the question was: can he inherit despite such a rule? It was obvious he’d need the money for whatever medical care he’d need for the rest of his life.

The court determined he could inherit. I presume it was because the element of intention was not really present.