Legal terminology can make managing your finances and figuring out your estate plan downright intimidating. That said, a little knowledge goes a long way. With that in mind, we’d like to help you understand one really important piece of legal terminology — intestate. We’ll go through what it is, how it works, and why it matters in your own financial life.
What is Intestate?
Intestate is the state of dying without having a legal will in place.
When a person dies, someone needs to answer where the belongings should go — who should inherit them. Unfortunately, without a will in place, your desires here might not be honored.
Any of the things you own that are not “assigned” by a will, trust, or other means is considered intestancy.
How Intestate Works
When you die, it’s necessary for someone to identify your assets, pay off your debts, and allocate the remaining assets to your inheritors.
If you are testate (having made a valid will or trust before you die), the person in charge of that process is your executor - an individual you choose ahead of time. This person will distribute your possessions based on your will and any other asset declarations, such as:
- Beneficiary declarations (for example, on a life insurance policy or retirement account)
- Joint ownership (for example, through a deed for your personal property or car)
- Transfer-on-death or payable-on-death accounts
If you don’t have an explicit declaration of where those assets go (a will, a trust, or another legal instrument), those remaining assets are distributed by a state-appointed executor, according to state intestacy laws. You have died intestate.
Note, it is possible to have some of your assets to be intestate, while others are spoken for. If your will is incomplete, portions of your estate may still end up intestate upon your passing.
When you are intestate, the method by which your assets are distributed is decided by state probate laws. These laws can vary widely from state to state and may not represent your wishes. Furthermore, the probate process pays off your liabilities and distributes your assets. This process may be governed by laws from different states depending on where you held residency, where your property/assets were located, and other factors. In this case, it’s even possible for the state laws to conflict!
The state-appointed executor is responsible for identifying your potential heirs, following the state laws on distribution and representing your desires and interests. But there are no guarantees that this process will go smoothly or according to your wishes.
Potential heirs can contest probate decisions in court, arguing about your wishes and stretching out the legal process.
Why Does Intestate Matter?
Ultimately, intestate matters because it means your desires might not be represented.
Only you know your wishes about your estate once you pass. If those aren’t documented in a legal will or trust, those wishes are subject to the imperfections in the probate process. These include the potential that:
- Assets may not go to individuals important to you (close friends, business partners, others)
- The value of your estate may decrease before distribution. The costs of going through probate court may be taken out of the value of your estate.
- Your heirs may be greatly delayed — by months or even years — from receiving your estate.
In the worst case, your estate would be diminished, delayed, and potentially even going to the wrong people.
Intestate is a very serious situation, so it’s worth exploring how to prevent your own estate from entering intestacy.
3 Ways to Avoid Intestate
The good news is that intestate is fairly easy to avoid. Here are three ways to prevent your estate from being in intestacy when you die:
- Ensure assignment of beneficiaries in your policies and accounts. Most retirement accounts and insurance policies have the ability to assign beneficiaries. Do this! By assigning beneficiaries directly, you can prevent these accounts and assets from being a part of the probate process.
- Create a last will and testament. A legal will declares your personal desires for how your estate should be handled after your death. A will clears up ambiguity around who your heirs are, what assets they should receive, and your desires. With a will, your assets still enter the probate process, but your will stands as the primary legal document to represent your wishes.
- Create a living trust. The ultimate solution is to create a living trust and transfer your assets while you are still alive. This allows your estate to bypass the probate process completely, so any assets can be distributed to your heirs immediately upon your death.
When you pass away, having a will or trust can help prevent your family from needing to go through protracted legal processes to determine what happens with your money and possessions.