Determining inheritance after a person passes away with no traditional resources like a will, trust or estate can be challenging. What can make things even more complicated is the fact that many assets, such as life insurance policies and 401k balances are not distributed in a will.
If there’s no financial plan in place after death, the decision of how the inheritance gets distributed lies with the state in a process known as intestate succession. This means that the deceased’s assets are disbursed in accordance with the area’s laws.
Read on to find out how intestate succession works and why it’s important to start thinking about creating a will if you haven’t already.
Uniform Probate Code
Though laws differ from state to state, the core of intestate succession is defined in the Uniform Probate Code. This dictates the deceased’s inheritance goes to close relatives, generally defined as spouse, children, grandchildren, parents, siblings, nieces, nephews, and grandparents. If none of these surviving family members meet the qualifications to receive the estate, the inheritance is given directly to the state.
Check Out: Is a Financial Advisor Worth It?
Division Among Relatives
If the person who’s died has a surviving spouse, the spouse can inherit the entire estate and divide it among children of the deceased, according to Law.com. The spouse must be legally married or a domestic partner to the person who has died. In some states, common law marriages are recognized as legal marriages, and therefore the common law spouse of the deceased can inherit the estate.
The surviving spouse takes between $100,000-$150,000 of the estate plus 50% of anything more than that, depending on if the spouse is also related to the children.
If there are no children, but the deceased’s parents are alive, the spouse takes the first $200,000 of the estate plus 75% of anything more than that amount. By most laws, children of the deceased are defined as direct descendants and adopted children. If a child was conceived out of wedlock, laws dictate the child inherits only from their mother, and would need to show documentation to prove the deceased was their father to be entitled to the estate. Stepchildren and foster children are usually not eligible for inheritance. In some states, stepchildren (who have not been legally adopted) are not eligible to inherit until all direct relatives have received assets.
If the deceased does not have a surviving spouse, the entire inheritance goes first to any eligible children. If there are none, it is then given to the parents. If there are no surviving parents, the estate is offered to siblings, then other relatives as defined in the Uniform Probate Code.
Important: What Is the Death Tax?
The federal estate tax only applies to any amount over $5.45 million. At that point, there’s a 40% tax rate. However, some states’ estate taxes which start on much lower amounts. For example, Oregon has an estate tax between 10-16% on estates worth $1 million or more. For more information on estate and inheritance tax by state, visit TaxFoundation.org.
It’s Never Too Early To Create a Will
Though writing a will can seem like a daunting proposition, it’s something that everyone should think about, especially when taking intestate succession laws into consideration. Not only will it give you direct control of who inherits what, it will provide you and your loved ones peace of mind. And that’s something that you can’t place monetary value on.