Read more about the article What Happens When There Is No Will? Annapolis and Towson Estate Planning

What Happens When There Is No Will? Annapolis and Towson Estate Planning

A will ensures that your personal and financial assets are given to the people and organizations you want. It also allows you to choose the person you want to settle your affairs, known as your executor. The time to have a will prepared is typically the same time people have a power of attorney and healthcare proxy forms prepared, according to the article “What Happens if You Die Without a Will?” from The Street.

Your estate plan is the term used to describe having all of these and other tools prepared to work together. It has nothing to do with the size of your estate, which could be modest or major. Regardless of the financial size or complexity of your life, you need a will.

What happens without a will?

A married person with children who dies without a will does the family a great disservice. All property, including real estate, investments and accounts that are jointly owned with the spouse go to the co-owner without needing to go through probate. However, separately owned property and accounts are distributed by the state in the absence of a will. Depending on the state, one-third may be awarded to the surviving spouse, and the remainder may be divided among the children. If the children are minors, the funds will be held in an account only accessible with court approval. The family may find itself without sufficient funds to maintain its lifestyle.

A person who is married but has no children or grandchildren and dies without a will may have their entire estate given to the surviving spouse. However, some states have a cap of $100,000. Other states give a third of to one-half of assets to the surviving spouse and the rest to the deceased’s parents, if they are living, or to the siblings. Jointly owned property, accounts and community property go to the surviving spouse.

What about a single person with children? With no will, the state law gives the decedent’s assets to surviving children in equal shares. If an adult child is deceased, their share is split among their own children (the decedent’s grandchildren). However, if the children are minors, the money is subject to court control and supervision.

If someone who is single and has no children dies, the state usually gives their assets to surviving parents. If the parents are not living, the assets will be distributed to the decedent’s siblings, or nephews and nieces, if the siblings have also passed. The state will reference a consanguinity chart—a chart used to help identify relationships of people showing degrees of family relationships by blood or marriage. Assets may pass to distant cousins who have never met or even known of the existence of the decedent.

If there are no living family members, the estate typically goes to the state itself.

When a member of an unmarried couple dies without a will, the surviving partner has no legal rights at all. Only spouses and relatives are recognized by state law. The partner will not inherit anything; assets will pass as if the person was single.

Domestic partners are treated differently in different states. In some states, they have inheritance rights, but this is state-dependent.

An experienced estate planning attorney can create a will and related documents to ensure your wishes are carried out upon your death. Otherwise, your estate will be distributed according to the laws of your state. You can protect yourself and your loved ones with a will.

Contact us to review your estate plan with one of our experienced estate planning attorneys

Reference: The Street (Jan. 2, 2023) “What Happens if You Die Without a Will?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Is a Community Property Trust? – Annapolis and Towson Estate Planning

Where you live matters for estate planning, since laws regarding estate planning are state specific. The same is true for taxes, especially for married couples, says a recent article “How Community Property Trusts Can Benefit Married Couples” from Kiplinger.

There are two different types of basic ownership law for married couples: common law and community property law. Variances can be found across states, but some general rules apply to all. If a state is not a community property state, it’s a common-law state.

Community property states have a tax advantage for assets when one spouse dies. But if you live in a common-law state, don’t worry: several states have now passed statutes allowing married couples living in a common-law state to establish a community property trust with a qualified trustee. They can gain a step-up in cost basis at each death, which previously was not allowed in common-law states.

First, let’s explain what community property means. Each member of the married couple owns one half of all the property of the couple, with full rights of ownership. All property acquired during a marriage is usually community property, with the exception of property from an inheritance or received as a gift. However, laws vary in the community property states regarding some ownership matters. For example, a spouse can identify some property as community property without the consent of the other spouse.

Under federal law, all community property (which includes both the decedent’s one-half interest in the community property and the surviving spouse’s one-half interest in the community property) gets a new basis at the death of the first spouse equal to its fair market value. The cost basis is stepped up, and assets can be sold without recognizing a capital gain.

Property in the name of the surviving spouse can receive a second step-up in basis. However, there’s no second step-up for assets placed into irrevocable trusts before the second death. This includes a trust set up to shelter assets under the lifetime estate tax exemption or to qualify assets for the unlimited marital deduction. This is often called “A-B” trust planning.

Under common law, married couples own assets together or individually. When the first spouse dies, assets in the decedent spouse’s name or in the name of a revocable trust are stepped-up. Assets owned jointly at death receive a step-up in basis on only half of the property. Assets in the surviving spouse’s name only are not stepped-up. However, when the surviving spouse dies, assets held in their name get another step-up in basis.

To date, five common-law states have passed community property trust statutes to empower a married couple to convert common-law property into community property. They include Alaska, Florida, Kentucky, South Dakota and Tennessee.

The community property trust allows married couples living in the resident state and others living in common-law states to obtain a stepped-up basis for all assets they own at the first death. Those who live in common-law states not permitting this trust solution can still execute a community property trust in a community property state. However, they will first need to appoint a qualified trustee in the state.

For this to work, the trusts need to be prepared properly by an experienced estate planning attorney, who will also be able to advise the couple whether there are any other means of achieving these and other tax planning goals.

Reference: Kiplinger (Sep. 18, 2022) “How Community Property Trusts Can Benefit Married Couples”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Does the Way I Title My Assets Have an Impact on My Estate? – Annapolis and Towson Estate Planning

FedWeek’s recent article entitled “How Assets Are Titled Can Make a Big Difference” discusses the different ways property may be titled, and the significance of each one.

The way in which you take title to assets can affect your estate, taxes and perhaps the disposition of the asset if a couple divorces. Many couples want assets to be titled simply in the event something happens to one, so the other spouse can take possession immediately without taxes or complications. Joint ownership may be the simplest way to meet most of these objectives. However, this can get complicated if any number of things happen, such as divorce, second marriage, children from multiple marriages, adoption and blended families of all types.

It is critical to be educated on the different types of ownership, so you know when a change may be needed. Here are the main options:

Holding Assets in Your Own Name is simple and inexpensive. However, if you become incompetent, those assets might be mismanaged. At your death, individually owned assets may have to go through probate.

Joint Tenants with Right of Survivorship is when one co-owner dies, all assets held this way automatically pass to the survivor. One joint owner can take over if the other is incapacitated, and jointly held assets do not go through probate.

Tenants in Common means there is a divided interest, although none of the owners may claim to own a specific part of the property. At the death of one of the joint owners, the share owned by the deceased must pass through their will to determine ownership. The surviving joint owner does not automatically own the entirety of assets.

Tenancy by the Entirety is a type of joint ownership similar to rights of survivorship for married couples. It lets spouses own property together as a single legal entity. Ownership cannot be separated, which means creditors of an individual spouse may not attach and sell the property. Only creditors of the couple may make claims against the property.

With Entity Ownership, you might create a trust, a partnership (such as a family limited partnership), or a limited liability company (LLC) to hold assets. These entities may provide protection from creditors and tax benefits.

Community Property may only be used by married couples in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Each person owns an undivided interest in the entire property. When a spouse dies, the survivor automatically receives the entire interest, so there is no need for probate. Community property cannot be controlled by a person’s will or trust.

Ask an experienced estate planning attorney to review your estate plan and how assets are titled.

Reference: FedWeek (July 27, 2022) “How Assets Are Titled Can Make a Big Difference”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys