By: Jose Roman
Everyone has an estate plan whether you know it or not. If you have previously hired an attorney and they prepared estate planning documents for you congratulations, you are in the minority of Americans when it comes to estate planning. For the rest of you who haven’t started your estate plan, don’t worry (or be very afraid) the government has you covered with the government provided estate plan known as the laws of intestate succession. On today’s post I will go over the laws of intestate succession in Pennsylvania and how the lack of an estate plan can cause what your wishes are to be in direct conflict with how the government will divide your estate after you pass away. If you don’t want to leave your estate to chance continue reading to learn more about intestate succession and what you can do about it today.
What is probate versus non-probate property?
Before jumping into a discussion about the laws of intestate succession it is important to distinguish between probate and non-probate property. It is important to make this distinction because the laws of intestate succession only apply to probate property. Probate property is any property that you own, in your name only at the time of your death that must go through the probate process for it to be transferred to your ultimate beneficiaries. This includes for example, bank accounts in your name, real estate that you own either individually or as a tenant in common, vehicles in your name only, brokerage accounts and any other asset that you own as an individual.
Non-probate property on the other hand is property that is either owned jointly with another person and that includes a right of survivorship or is owned by you individually but there is a beneficiary designation or other contractual arrangement that provides the property will be transferred automatically to another person after your passing. Non-probate property also includes any property that you transferred during your lifetime into a trust regardless of whether or not the property was placed in there for your benefit or the benefit of others.
In Pennsylvania, if a married couple owns their house together it is assumed they own the house as Tenants by the Entireties, a form of joint ownership with right of survivorship. When one spouse dies the other spouse becomes the sole owner of the property automatically without the need to probate the property. However, upon the survivor’s death the property will need to go to probate to be transferred to the ultimate beneficiaries of the survivor’s estate. When the first spouse dies the property will be considered non-probate property and when the second spouse dies the same property will be considered probate property assuming the property wasn’t transferred during the survivor’s lifetime.
All this talk about probate versus non-probate, but what exactly is probate? Many people have heard the term and some people base their entire estate plan around avoiding probate. Simply put, probate is the court supervised administration of your estate after your passing. After you pass away if you have a Will, it will be presented to the court in the county where you lived so that your estate can be administered according to your wishes. Your executor will gather your assets, notify your beneficiaries and creditors about your passing, pay off any debts you had that are enforceable and pay the remaining estate to your beneficiaries. This is a simplified explanation of probate but that is the gist of it. The same process will be followed if you die without a will with the exception that you don’t get to determine who your beneficiaries are. Dying without a will, or other form of estate plan like a trust, is where the laws of intestate succession come into play. Remember, if you do not have a will or trust in place at the time of your passing that determines who inherits your probate property the laws of intestate succession, or as I like to call them, the government provided estate plan, determines who your beneficiaries are.
Pennsylvania’s Law of Intestate Succession
In Pennsylvania, generally all or any part of a decedent’s estate that is not effectively disposed of by a will, or which passes to heirs, is part of the intestate estate. This one sentence gives us a clue on how to avoid the laws of intestate succession. If you have a will, and that will effectively disposes of your entire estate, you can avoid application of the laws of intestate succession. Also, property that passes to a designated beneficiary, as well as any property you have in a trust such as a revocable living trust, will avoid intestate succession with the added benefit of also being considered non-probate property. The laws of intestate succession are meant as a fail safe for people who do not have an estate plan, or maybe have failed to update that plan in a long time and changed circumstances have caused some or all their estate to be a part of their intestate estate. Application of the intestate statute can affect who benefits from your estate, who will be named as the Administrator of your estate and so much more. Our goal is to avoid application of the intestate statute as much as possible by having a properly drafted will or other estate planning document such as a trust that covers all your bases.
One of the main purposes of intestate succession is to determine who inherits from you if you do not have a will. In Pennsylvania here is a brief overview of how your intestate estate can be distributed if you die without a will.
If you have a surviving spouse:
If you die and have a surviving spouse, but no surviving children or parents, your surviving spouse inherits your entire estate.
If you die and have a surviving spouse and at least one surviving parent, but do not have any surviving children, your spouse will inherit the first $30,000 of your estate along with half of the remainder, with your surviving parent or parents sharing the other half that remains of your estate.
If you die with a surviving spouse and also have surviving children, all of whom are also the children of your surviving spouse, your spouse will inherit the first $30,000 of your estate along with half of the remainder, with your surviving children sharing the other half that remains of your estate.
If you die with a surviving spouse and have surviving children, one or more of whom are not the children of your surviving spouse, then your spouse will inherit half of your estate, they will not be entitled to the first $30,000 like in the other scenarios, and the remaining half will be divided among your surviving children.
If you do not have a surviving spouse your estate will pass to the survivors of your children, your parents, your siblings, grandparents, aunts and uncles and the children and grandchildren of your aunts and uncles in that order. If none of these people survive you then your estate goes to the Commonwealth of Pennsylvania.
Your first concern when seeing this should be what if that is not how you want your estate distributed? Let’s say for instance that if you were to pass away you would like your spouse to inherit your entire estate and would like to leave it up to them how they will divide it amongst your surviving children? Well depending on the relationship between you, your spouse and your children, your spouse may only be entitled to half of your estate or the first $30,000 plus half of the remainder. Another thing to consider is what happens if your children are minors? Would you be comfortable with someone being under the age of 18 inheriting a large sum of money? I know I wouldn’t, and the law isn’t comfortable with that notion either. Courts will appoint someone to take custody and manage the funds of the minor until they are an adult, but even then, the appointment only lasts until they are 18 at which point they are legally adults. Having a will or trust allows you to determine how much your children inherit and when, with many people placing their children’s inheritance into a trust that they cannot access until they are 25, 30, 35 years or even older.
For some people seeing how intestate succession works is not so much about who inherits their estate but who they don’t want to inherit their estate. There is the saying that we don’t go to choose our family and for some people that presents a problem. Under the laws of intestate succession, you don’t get to choose who your family is, so if there is someone that you would rather not see inherit from your estate after your passing then having a will is the easiest way to avoid a result that you do not want. Other people may choose not to leave their estates to their children not out of animosity, but because they believe that having a large inheritance will stifle any ambitions or make them reliant on other people’s money. In those cases, someone may choose to donate their estate to charity or some other cause they are passionate about.
Just remember that intestate succession only applies if you do nothing about it. If you do not like what you are being given with the government estate plan then you need to take action to make the changes.
How do we plan around the laws of intestate succession?
The first step in planning around the law of intestate succession is understanding that it exists. Many people upon learning about it are surprised how it would apply conflicts with how they would like their estate handled. Next is to understand that almost everything about the laws of intestate succession can be changed by you with an estate plan. You don’t want your children to inherit half of your estate because you want everything to go to your surviving spouse? That’s fine. You want to make sure that one uncle you have (that we all have let’s be honest) doesn’t inherit anything from you? You can do that. Do you want your children to inherit a large sum from your estate but would like to spread the inheritance over a period of years into their adulthood so that they don’t spend it all while they are in their late teens or early twenties? You can do that, and many people do.
What steps do we need to take to accomplish this? First, we need to inventory your estate and determine which assets you have and whether they are probate or non-probate property. If the property is non-probate we need to determine who will inherit that property and why. Do you own your house with your spouse as tenants by the entireties? If so, the surviving spouse will inherit that property by operation of law. If the asset is something like a 401(k) or and IRA we need to make sure you have properly designated beneficiaries to retain its classification as non-probate property. Any property that is in a trust you created is considered non-probate property as well.
The easiest way to avoid intestate succession is to have a will. In fact, dying with a will is called dying testate whereas without one is called dying intestate. We want to make sure that we are dying testate so that our wishes are documented, and our life’s work is protected for the ones we love the most. Having a will does not avoid the probate process but it does avoid intestate succession. A properly drafted will also disposes of your entire estate through the use of “residuary estate” clauses that include all of your estate that isn’t specifically mentioned in the document.
If you have a trust we must make sure that the property that it is in the trust is properly titled to be considered a part of the trust, otherwise the property will be considered probate property. That’s fine so long as you have a will that covers that property. In fact, if your estate plan is a trust-based estate plan it is always a good idea to have what is called a pour-over will included. A pour-over will simply states that any part of your estate that is not already included in your trust will go to that trust after your passing. The trust document itself will determine who you beneficiaries are and in what amounts with the added benefit of trust assets being excluded from the probate process.
Take Action
The wonderful thing about estate planning is that you get to decide what goals you want to accomplish and how you want to accomplish them. The goal of an estate planning attorney like myself is to educate you and provide guidance on your estate plan, but ultimately it is up to you to decide who you want to benefit from your estate and how they benefit from your estate. The biggest decision you must make is the decision to take action and put something in place as soon as possible.
As this brief discussion about intestate succession hopefully highlights to you, there are many aspects of the law in general and about estate planning law that differ from our perception of how they should be. There is a saying I have for my law firm “Don’t leave your estate to chance when you can leave it to your loved ones.” Part of the reason for that saying is because of the laws of intestate succession, the government provided estate plan. The government provided estate plan is absolutely free, but it is one of those things that you get what you pay for it.
If you have any questions about this post or any other topic related to estate planning feel free to e-mail me at jose.roman@romanestatelaw.com and I would be happy to assist you. If you would like to request a consultation you can do so at https://www.romanestatelaw.com/book-online
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