Death is never at the top of our list of things to think about. Sometimes ignorance is bliss. However, when we don’t take the time to address what will happen to our estate after we die, you can get some very unintended consequences. Let me give you an example.
Bob and Sue met each other after their spouses passed away after difficult health battles. They were so very thankful to find the support and friendship in each other and decided to get married. Bob had one daughter from his first marriage. Sue did not have any children. They each owned a home prior to their marriage and forgot to update the deed that was recorded with the county for those parcels of real estate. They purchased another parcel of land jointly after they married. Each maintained their own bank accounts from pre-marriage and also set up several joint bank accounts together. As the years passed, they continued to add each other as beneficiaries on their life insurance policies and on their retirement funds. However, neither Bob nor Sue completed a comprehensive review of their asset titling/beneficiaries and did not create a new estate plan that named each other as the executor and provide a plan to divide their estate upon death.
Bob passed away unexpectedly. Since he did not have a Will or Trust describing how his estate would be divided between Sue and his daughter, the state of Minnesota applies their own estate plan to Bob’s estate. These are the rules of intestacy. Assets that were jointly owned with Sue were able to pass directly to Sue. However, any assets that were in Bob’s name, such as his real estate owned prior to the marriage and the bank accounts in his name were subjected to the state’s plan.
Very generally with respect to these assets, the state would say that Sue could have a life estate in Bob’s real estate, with the remainder going to his daughter on Sue’s death. Those types of arrangements can be challenging sometimes. If Sue wanted to sell the property, she needs to have Bob’s daughter agree and sign off. Not to mention if his daughter is married then the daughter’s spouse would also need to consent. The transfer of this real estate would require that Sue go through the court probate process to have her approved as the executor and only then could the transfer be completed.
Bob’s bank accounts in his name only would not automatically pass to Sue. The state would say, Sue gets the first $225,000 and then anything after that gets split with the daughter. The court probate process would again be used to complete the transfer of this money.
The state plan would also say that Sue could make an elective share against Bob’s overall estate and seek to keep more than the formula above depending on how many years she has been married to Bob. This augmented estate calculation is long and complicated. It can often put the surviving spouse at odds with child of the deceased.
This is a simplified explanation of the process, but it gives you a picture of how failure to act can create those unintended consequences. The moral of the story, Bob and Sue could have avoided this entire scenario by putting together an estate plan and completing a review of all their asset titling and beneficiary designations. It is so important to ensure that everything is coordinated and will work the way you actually intend that it will.
Please send me an email at email@example.com with any topic suggestions or requests you may have. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it