|October 3, 2013|
Previously published on Fall 2013
Individuals who die without a will generally have their assets distributed to their heirs as determined by the California Intestate Succession Statutes--the default laws of inheritance. Although there are many ways to avoid intestate succession (e.g. through a trust, testamentary designations, etc.), the reality is that most people never create an estate plan before they die. As a result, after losing a loved one, many families are left to navigate the intestate succession statutes, and the probate courts determine the affect of any Testimentary Designation, Joint Tenancy, Inter Vivos (living) Trust, and Small estate proceedings that may apply, and how family assets will be distributed.
The California intestate succession statutes are the default inheritance laws that determine how the assets of a deceased individual with no will shall be distributed. These laws provide for a number of varying scenarios. For example, if an individual without a will dies leaving a surviving spouse and multiple children, the decedent's community property and one third of his or her separate property will all go to the surviving spouse. The remaining portion of the separate property will go to the children. A single individual who dies, with no children, will have all of their property go to their parents. If there are no surviving parents, the property will go to the decedent's siblings. If the siblings are also deceased, it will go to the siblings' children. If there are no surviving family members whatsoever, the deceased person's assets will go to the state of California.
Of course, there are many ways to avoid having the state of California determine who will receive your assets even if you don't have a testamentary will. Non-probate transfers may allow an individual to transfer property upon death without probate and without court oversight of the distributions. For example, testamentary designations, joint accounts, and trusts are all ways of making probate excluded transfers upon death.
Testamentary designations in the form of Pay on Death (POD) or Transfer on Death (TOD) accounts are commonly seen on IRAs, 401ks, life insurance policies, savings accounts, etc. When the assets in the account are not community property, it is possible to list who the beneficiary to the account will be without having the assets of the account ever having to go through probate. If the assets in the account are community property, a portion of the community property will have to go to the surviving spouse even if another individual is listed as a designated beneficiary to the account. Designating a beneficiary to a tax deferred account has the additional benefit of allowing the beneficiary to roll the account over into their own name and continue to enjoy the tax deferred status of the account.
Transfer on Death designations can also be used for vehicles registered with the DMV. According to California Vehicle Code 4150.7, a Transfer on Death beneficiary can be designated on the certificate of title to a vehicle by including, after the name of the owner, "Transfer on Death" followed by the name of the beneficiary. The vehicle must also be owned by only one person and only one person can be listed as a beneficiary. By designating a TOD beneficiary on the certificate of title, the vehicle will pass directly to the listed beneficiary upon the death of the owner. This designation can be changed at any time or automatically canceled upon sale of the vehicle.
An account or land held in joint tenancy works similarly to TOD accounts. For example, if two individuals hold a bank account in joint tenancy with a right of survivorship, the surviving individual will become full owner of the account upon the death of the other individual. However, unlike a TOD account beneficiary, joint tenants each have a present interest in the property held together. A TOD beneficiary does not have a present interest, or have any right to the property at all, until the owner actually dies. In a joint tenancy all individuals who hold the assets as joint tenants have a current property interest that cannot be changed unilaterally by the other joint tenants.
Inter Vivos Trust (living trust)
An inter vivos trust is a document used to distribute assets while the creator of the trust (the settlor) is still alive. Unlike a will, where assets are only distributed upon death, the settlor's assets are transferred to the trust and held by the trustees of the trust for the named beneficiaries (which often times are the settlors themselves). The trustees administer the trust assets according to the terms of the trust. When the initial trustees die or resign, successor trustees are named and take over the administration of the trust's assets. Likewise, when the initial beneficiaries die, successor beneficiaries, as determined by the terms of the trust, can then enjoy the assets of the trust. Although a trust can distribute the assets of an individual who had no will, most trusts are prepared as part of a complete estate plan that includes a will and several other important documents (such as an advance health care directive and durable power of attorney).
Small Estate Declaration
For individuals without a will who die with minimal real estate holdings, and with the entire estate valued at less than $150,000, their heirs may use the small estate declaration procedure to collect the assets without ever going to court. Of course, assets passing to beneficiaries in POD accounts, by TOD designations, through a trust, or by joint tenancy are excluded from the estate and do not count toward the $150,000. Heirs, as determined by the intestate succession statutes, can produce a notarized small estate declaration with a certified death certificate to the holder of the decedent's assets to claim those assets. The holder of the decedent's assets cannot unreasonably refuse to distribute the assets to the rightful heirs. Often times banks and other financial institutions will have their own small estate declaration forms that individuals can use to help facilitate the distribution.
Although there are many ways to distribute assets without a will, an individual who fails to plan ahead and have a will prepared will likely also fail to designate beneficiaries for all of his or her accounts or create a trust and have it properly funded. Failure to plan for one's own passing will likely lead to much confusion and hardship for surviving family members dealing with the death of a loved one, in addition to the frustration of probate court and the default intestate succession laws. Relying on the default California intestate succession laws may produce unintended consequences and hardship on your surviving family members. The best estate plan is the one you choose for yourself.