Passing without an Estate Plan

Passing without an Estate Plan

If you die without a will or a revocable living trust, your assets will pass to close family members in a manner that the Minnesota legislature has determined. However, there are some assets that will pass by beneficiary designations too. In effect, you have multiple estate plans in place.

First, the state-sponsored program that I will describe in a moment. Second, your life insurance proceeds will pass to the beneficiary you have designated with your life insurance company when establishing or modifying the beneficiary designation of your life insurance policy.  Third, your retirement accounts (IRA, 401(k)) will pass to the beneficiaries designated on those accounts.  Fourth, certain assets held as joint tenants will pass to the other persons listed in the joint tenancy.  Finally, transfer on death assets (like bank accounts or real property where you have filed a transfer on death deed) will pass to the persons you listed on transfer and death instruments.  If you do not manage the disposition correctly and have multiple plans in operation, you may inadvertently leave disproportionate assets to your intended heirs.

Now for the state-sponsored legislative plan for disposing of assets if you do not have a will or revocable living trust in Minnesota:

1. if you do not have a spouse or children or grandchildren, but your parents are still alive, your parents will inherit everything;
2. if you do not have a spouse or children or grandchildren and your parents have already passed away as well, your siblings will inherit everything;
3. if you have children but no spouse, your children or grandchildren will inherit everything equally;
4. if you are married but have no children or grandchildren, your spouse will inherit everything;
5. if you are married and have children with that spouse and no other children or grandchildren from others, your spouse inherits everything;
6. if you’re married and have children or grandchildren with your spouse and you or your spouse have children or grandchildren from a different relationship, your surviving spouse receives the first $225,000 and then 50% of whatever assets you have in excess of that and your children inherit everything else equally;
7. if you do not have a living spouse, children, grandchildren, parents, siblings then the law will try to dispose of the assets to cousins and nephews and nieces.

Let’s work through an example. Let’s say that Steve and Sally were married for 15 years. Steve was previously married and had children with his prior spouse. Sally was also married and had one child, now 17, with her prior spouse. Let’s say that Steve passes away naming Sally the beneficiary of his $1 million 401(k) account, the beneficiary of life insurance of $1 million, having Sally as joint tenant on their home worth $500,000, joint bank accounts with $100,000 in cash, Steve also had $150,000 in a securities account, finally, Steve has personal property-some of which has high sentimental value, i.e. family heirlooms-worth $50,000. Steve has no other assets. Since Steve did not have a will but had multiple methods of distributing assets upon his passing, i.e. retirement account beneficiaries, joint tenants, life insurance beneficiaries, the only funds that will actually be disposed of pursuant to the legislative framework is the $150,000 in securities and the $50,000 of family heirlooms. Since the first $225,000 of assets go to the surviving spouse, Steve’s children get nothing. Now let’s say six months pass and Sally dies without a will. All of Sally’s assets and Steve’s former assets, worth millions and millions of dollars, goes entirely to Sally’s child.  Since Sally’s child is not yet 18, the court will appoint someone to take care of those funds. Upon reaching 18, Sally’s child will take all funds without restriction.

This is an excerpt from the book “The Ultimate Guide to Estate Planning” by Thomas M. Fafinski