People who are reluctant to spend the time and money to get an estate plan often wonder whether they even need an estate plan, and what would happen if they died without one. (The term “need” is tricky when it comes to estate planning, given that estate plans typically help an individual’s family more than the individual him/herself.) The most well-known element of an estate plan is a will. When an individual dies without a will, every state, including North Carolina, has a set of laws (called an “intestacy statute”) that steps in and dictates what happens to that individual’s belongings. Whether you “need” an estate plan depends primarily on whether you’re satisfied with the distribution of your things under this statute, how much you care about avoiding the estate administration process (see What’s the point of estate planning? below), and whether you have minors in your care. This article is meant to help North Carolinians evaluate whether they should hire an attorney to set up an estate plan.
What’s the point of estate planning?
For the typical North Carolinian (who isn’t likely to be affected by federal estate tax laws), estate planning has two major purposes:
- First, to ensure that our money, our things, and our minor children go where we want them to go at the time of our death.
- Second, to minimize the amount of our assets passing through the expensive, time-consuming, and public process of estate administration.
Above all, estate planning is meant to benefit and protect an individual’s family after the individual’s death.
What will happen to my property?
How your property passes after your death depends on how the property was owned during your life. Any property that was owned jointly with the right of survivorship (such as a residence you and your spouse bought together, or a joint bank account) will pass to the surviving joint tenant (your spouse, in this example) without the need for court intervention. Some other assets, such as bank accounts with “payable on death” designations or retirement accounts with named beneficiaries, will similarly pass to the beneficiaries without going through the court system. Any assets that you owned individually and which aren’t otherwise disposed of (like through beneficiary designations) will go through the court system via “estate administration” (sometimes called “probate”). During this process, the court will appoint an administrator (similar to the executor you might appoint in a will), who will pay your debts, funeral expenses, and court and administrative fees and then, finally, distribute whatever property is left over. How your property is distributed depends on the combination of family members who outlive you, as follows. (NOTE: “real property” refers to real estate, and “personal property” refers to virtually all other property. ALSO NOTE: If you had a child who passed away and left you grandchildren, those grandchildren can stand in for their deceased parent for purposes of the distributions below. These rules can be difficult to understand, so please consult with an attorney to learn how they apply to your specific situation.) If you are survived by:
- Parents only (no spouse or children): Your entire estate (including personal and real property) will be divided equally between your parents. If only one parent is still living, everything will pass to that parent.
- Spouse only (no children or parents): Your spouse will get your entire estate (including personal and real property).
- Spouse + parents (no children): Your spouse will get ½ of all real property, the first $100,000 of personal property, and ½ of any remaining personal property. Your parent(s) will get the other ½ of all real property and the other ½ of any remaining personal property (after the first $100,000).
- Spouse + one child (regardless of parents): Your spouse will get ½ of all real property, the first $60,000 of personal property, and ½ of any remaining personal property. Your child will get the other ½ of real property and the other ½ of any remaining personal property (after the first $60,000).
- Spouse + two or more children (regardless of parents): Your spouse will get ⅓ of all real property, the first $60,000 of personal property, and ⅓ of any remaining personal property. Your children will evenly split the remaining personal and real property.
- One or more children (no spouse; regardless of parents): All assets will be divided evenly among your children.
- No spouse, children, or parents: North Carolina intestacy laws provide for distribution of your assets to more remote relatives (the details of which are beyond this article’s scope). If you have no surviving blood relatives, your assets will pass to the State of North Carolina.
In light of the distribution scheme above, here are a few situations where you’ll need a will:
- You want to pass property to someone who is not your spouse or close blood relative—like a friend, your spouse’s family, or a charity.
- You want to pass property to your spouse or close blood relative, but not in the proportions described above. For example, you have living parents and/or children, but you want your spouse to get everything.
- You’re not legally married, but you want to leave property to your partner. Note that common law marriage does not exist in North Carolina, no matter how long you and your partner have lived together. Unmarried couples will also need to be careful with assets like retirement accounts, making sure beneficiary designations are correctly coordinated with their desired estate plan.
What will happen to my minor children?
Parents of minor children may find it especially important to have a will. A will allows you to pick a guardian for your child—that is, the person who would take care of him/her if you and the child’s other parent passed away. If you don’t name a guardian, the court system will pick one—a process that can stir up family discord if there’s any disagreement over who should take the child. If you have minor children, your will should also name someone to manage your assets (including life insurance benefits) on their behalf. This can be the same person or a different person than the guardian mentioned above; picking a different person creates checks and balances and allows you to draw on the skills of more than one individual.
You may also wish to create a testamentary trust to set aside money for your child until he/she reaches the age when you think he/she will be able to handle the money. Since trusts can be specialized and complex, you should consult with an attorney to set one up.
If you have any questions, please post a comment below or send me a message here.