When planning for your family’s future and establishing your legacy, it’s important to consider any inheritance laws or practices that will impact your beneficiaries. Inheritance laws and practices can be confusing at best so we’ve pulled together a few important things to know as you outline or update your own estate plan.
If you don’t have a will, inheritance will be dictated by state laws
Many people don’t have a will or haven’t updated it recently, meaning that when it comes to inheritance, their wishes may not be followed. Without a legal document to outline your beneficiaries and your wishes, your estate and how it is distributed will be dictated by local laws, many of which will cause delays or increased taxes on the part of your family.
There are three many systems of inheritance in the US:
- Common Property: As a minimum, each spouse automatically owns half of what they each earned while married (meaning a spouse will automatically get half of an estate with the other half distributed to other beneficiaries). Community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
- Common Law: Spouses are not automatically entitled to half of the assets though many common law states will give spouses a right to petition for ⅓-½ of an estate.
Common law states: all other states, except Alaska, Tennessee, and Kentucky
- Elective Community Property: Spouses are not automatically given a right to inheritance but can sign an agreement to create a community property trust together.
Elective community property states: Alaska, Kentucky, Tennessee
Knowing which of these applies to you and your family is important to planning ahead.
Some states require more than a last will and testament
For many states, a last will and testament is all you need to guarantee that your estate is distributed according to your wishes. But in some locations, there are additional caveats or requirements depending on your estate size and composition. It’s important to consult your financial planner and lawyer before assuming that you’ve got everything you need.
You may be surprised by some inheritance laws
As outlined above, inheritance regulations can be very different state to state, but many of us assume certain things about how assets are inherited – and these assumptions may be wrong.
We’ve pulled together some of the common surprises when it comes to inheritance:
- Most states do not grant automatic inheritance to children if one parent dies.
- Inheritance is not considered property in case of divorce so the beneficiary’s spouse will not necessarily be awarded half of an inheritance upon divorce.
- In the rare case where no relatives can be found, the state will acquire assets when a person’s estate is intestate (meaning they have no will).
- In many states, an heir will have to live a certain amount of time longer than the deceased person (commonly 120 hours or five days). In other states, the heir only needs to outlive the deceased person by one second.
The most important part of preparing for the future is making sure you have a plan that outlines your wishes for your assets and how you want to provide for your family. An estate plan or will means that you and your family won’t have to worry about what happens after you’re gone.