In this entry of Ask Mike, Dan M. asks
What happens if I die without an estate plan?
I get variations of this question all the time. Sometimes its just a general question about how the California Probate Code works. Other times it’s specific to that person and their family.
The reality is that everyone has an estate plan, including those who do not take the time to make their own. The default estate plan is commonly known as “intestacy.”
To be clear, an estate plan is about who gets your assets after you die. It is also about who will care for your children or make medical decisions on your behalf. These questions have to be answered for everyone. That’s why the California Probate Code has a default estate plan that applies to everyone who hasn’t created their own.
As you can imagine, the Probate Code is very general. It makes several presumptions about you and your life. It makes presumptions about who you would want to make decisions and receive your assets. These presumptions are the result of 150 years of politicians and judges acting to ensure their vision of the default estate plan is what is used.
Sometimes, the Probate Code is not very clear and provides only guidelines. In those cases, it often falls upon a judge to decide who should be empowered to make decisions, receive property, or care for your children. Although you can always make arguments about what the court should do, they often have latitude to follow their own judgement, even if the rest of the family agrees on what should be done.
The most shocking result to many people is that spouses do not automatically inherit 100% of their assets. The Code uses a complex formula that may split a portion of the inheritance off to be given to children or parents.
Another result that is often confusing involves step-children. Step-children who have not been adopted may or may not be treated as your own natural children. Depending on your relationship with the child, you may prefer one result over the other. It will often be up to a judge to decide if the step-child was “equitably adopted” under a very subjective test.
To be clear, the default rules aren’t always bad or reach a wrong result. Sometimes the result happens to be what you would have chosen. But there is always a risk that the court or your family won’t make the choices that you would find optimal. Even when the right result occurs, it often takes much longer and costs much more than following an estate plan you have created.
Considering how much more cost effective estate planning is compared to the costs and risks of intestacy, it should be clear that everyone should form their own estate plan. It does not need to be complex or costly but it should clearly state your desires and wishes. It should also empower the people that you trust to provide and care for the people you love. And it should all be done in a way that courts, administrators, and others will respect and seek to uphold.