That’s a trick question. You have an estate plan. Something is going to happen to your assets after you die. Someone is going to take care of your kids. The real questions are: who is going to decide who gets what, and how much time and money is it going to take to figure it out? You can make your loved ones’ lives substantially easier during a time that is already likely to be difficult for them by leaving the answers to these questions, either in a will or a trust. For a lot of reasons, however, most of them not particularly good, most (yes, most) people don’t do that. So the question becomes: if you die without an estate plan, meaning that you die without leaving any instructions about who should get your assets or who should take care of your kids, what happens? Even if you are more proactive than most and have documented your wishes, it’s important that you know what the default rules are so that you know what you need to plan around.
You probably have done some estate planning
The first thing to understand is that, as far as assets are concerned, the only ones that will be subject to court supervision are those that belong entirely to you and for which you have not designated a beneficiary. If, for instance, you own a house that is titled to you and your spouse, and you die, your spouse is going to get the house. Or if you have a 401(k), the person that you named on the beneficiary designation form will receive that account.
In fact, the titling of your assets and your beneficiary designations will control how your assets are distributed even if you have a will and that will contains different instructions. If, for example, you designated your brother as your 401(k) beneficiary 10 years ago, but have since gotten married, had kids, and drafted a will saying that your spouse or kids should get your 401(k), that 401(k) is still going to go to your brother.
Co-titling your assets and completing your beneficiary designation forms can be a quick, easy, and cheap way to estate plan. Failing to keep those documents up to date, however, can be disastrous. And the most critical point to understand about this is that keeping those forms up to date is crucial even if you do have a well-designed estate plan in place because those forms are going to take priority over any other instructions that you may leave behind.
But what about assets that are yours alone and which don’t have a beneficiary designation form? These assets will be doled out according to your state’s intestacy laws. In Colorado (and most other states), your surviving spouse is probably going to get most of your estate, with the exact amount dependent on whether you have kids with someone other than that spouse. If you are single with kids, then your kids are going to split your assets equally.
If you have no spouse and no kids, then your parents, brothers and sisters, nieces and nephews, or the kids of your nieces of nephews are going to receive your assets, depending on who survives you. If no one fitting any of those descriptions is available to receive your assets, then your assets will be transferred to your grandparents, aunts and uncles, cousins, or children of your cousins, again depending on who survives you. If, by this point, there still isn’t anyone available to receive your assets, then your assets will be transferred to the state.
These default rules aren’t necessarily terrible. The reason that they’re the default rules is because your state legislature thinks that they are the closest approximation of what the average person would probably want. Most people, however, would probably tweak these distributions at least a little. You may, for instance, want your brothers and sisters to receive your assets before your parents. Or you may have a kid that you want to disinherit. Or you may want to give at least some of your estate to a charity or a friend before getting all the way out to your cousins’ kids. And I’m skeptical that anyone would deliberately leave their assets to the state. If all you want to do is make some modifications around the edges of these default rules, it won’t necessarily be a difficult or expensive process, even with professional help, and you should look into it. This is especially true if you have people who are financially dependent on you and would need access to your assets immediately after your death.
Think of the children
One point that I cannot emphasize enough is that, if you have minor children, you must have a will, regardless of how few assets you have. A will is the only way for you to leave instructions about who should take care of your kids if you and their other parent become incapacitated or die. If you die without a will, a probate judge is going to have to select the person who will raise your children. Now, a probate judge is supposed to make this appointment “in the best interest of the child.” But even with the best of intentions, how likely is it that a probate judge who never met you is going to select the same person for this crucial task as you would? Speaking from my own experience, I can tell you that there is no chance that a probate judge would appoint any of the people that I have named in my will to serve as my kids’ guardians. Not because they’re not good choices, but because they wouldn’t be obvious choices to someone who didn’t know me. In the event that you leave assets to minor children but don’t identify a person who should serve as their financial guardian, a court is also going have to make that appointment.
In short, although there are well-established rules and procedures for determining who will get your stuff and your kids after you die if you fail to leave behind any instructions, that process can still be time consuming, expensive, confusing, and unlikely to end in the way that you would have wanted. If you don’t have a lot assets, creating an estate plan won’t necessarily be difficult or expensive. If you do have a lot of assets, it’s even more important that you do it correctly. And if you have kids, properly executing a well-designed plan is a must.