What happens if I die without making a Will?

Scary thought eh?

First let me dispel one myth.

If you don’t make a Will the government does not take your assets and estate for their own benefit. (Unless you die leaving no known relatives at all, which is extremely rare, in which case the assets go to the Crown)

The government does, however, have rules of distribution if you don’t have a Will.

These are called Intestacy rules:

Definitions:

Intestacy – The condition of having died without a valid will.

Intestate – A person who dies without having made a will – He/she died intestate

Dying without a valid will is known as dying ‘intestate’. Intestacy arises where the deceased dies without a valid will or where the deceased leaves a valid will, but the will does not effectively dispose of all of the person’s estate.

Other examples are:

  • After making a valid Will (that has not been made in contemplation of marriage or divorce) a person divorces or marries;
  • If the person making the Will is of unsound mind, or mentally ill/incapable at the time of making his/her Will; or
  • If the Will is damaged to the extent that it cannot be read or interpreted.

Intestacy means that the deceased’s estate will likely be distributed other than as the deceased intended.

Instead, how the estate is distributed will be determined by legislation, in other words, the GOVERNMENT, with the estate generally being distributed among the deceased’s nearest blood relatives.

This can lead to bitter and costly disputes over inheritances that inevitably reduce the size of the estate.

Intestacy also means that without a legal and valid will in place there is no appointed executor. Where a person has died without writing a legal and valid will an administrator must be appointed. Applying to the court for letters of administration is similar to applying for probate of a will, but does often lead to additional costs and complexities.

Distribution upon intestacy

In most countries if you die without a valid will, then your estate will be distributed according to intestacy rules. These are default rules which:

  • determine to whom the estate is distributed and in what proportions; and
  • can be complicated and vary depending on the value of the estate, the relevant jurisdiction and the type and number of family members you leave behind.

The default rules mean that you will not be able to:

  • ensure your assets are distributed to close friends or remote relatives – that is, those not covered by default rules; and
  • you won’t have expressed a wish, if applicable, to exclude certain individuals from receiving distributions.

There are many variations of intestacy laws in different countries, states and territories

Here is a very brief summary of those in Australia: (Links to various Inheritance Acts for different States are at the end of this article)

If you die without making a will and you are married WITH children distribution takes place as follows:

  • $50,000 goes to the surviving spouse
  • The remainder is divided:
  • 1/3 to the surviving spouse
  • 2/3 to the surviving children (held in trust if minors, that is under 18)

If you die without making a will and you are married WITHOUT children distribution takes place as follows:

  • $75,000 goes to the surviving spouse
  • The remainder is divided:
  • 1/2 to the surviving spouse
  • 1/2 to the family of the deceased.(Parents, if surviving, if not siblings equally)

 

If you die without making a will and you are single, widowed or divorced (NOT separated) distribution takes place as follows:

  • Everything equally to surviving ‘blood children (if any)
  • If no children then equally to surviving parents
  • If parents do not survive you then equally to siblings
  • If siblings do not survive you then the family chain continues down

If you die without making a will and you are married with NO surviving relatives (very unusual) distribution takes place as follows:

  • Estate is given to your surviving spouse in its entirety.

The examples above are the main outline of Intestacy’ distribution. Further more detailed information is available from the relevant links below.

Location of assets

When a deceased’s estate is located in more than one jurisdiction, two statutory schemes may govern distribution of the estate. Generally:

  • Movable property (for example, motor vehicles, pets and personal effects) is governed by the default rules in the place where the deceased resided; and
  • Immovable property (for example, land, a house and property rights) is governed by the default rules in the place where the property is located.

Spouses

The definition of ‘spouse or partner’ varies between the states and territories – as do their entitlements under law.

For example, if the deceased has no surviving children then:

  • the laws in some countries, state and territories provide that the surviving spouse is entitled to the entire estate;
  • the laws in others however provide that a surviving spouse is only automatically entitled to the entire estate if the deceased has no surviving parents or siblings.

Simultaneous death of spouses

Different countries, states and territories will also treat the simultaneous death of spouses in different ways.

In many the method of seniority is used to determine who died first. This means that:

  • the older spouse is assumed to have passed away first and their estate is then administered before the younger spouse’s estate – which can be a problem where the spouses own an asset jointly; and
  • if there is no valid will, then the jointly owned asset forms part of the younger spouse’s estate, and will be dealt with through intestacy laws.

In that example, if the couple has no children, then the family home passes to the younger spouse’s parents, effectively diverting the relationship assets to one side of the family.

Risk of access to the estate by third parties

If the deceased dies without a valid will, then they will have lost an opportunity to put in place appropriate structures (such as a will with a testamentary discretionary trust) to minimise the risk that third parties will gain access to the estate. Common scenarios where a third party may gain access to a deceased’s estate include where:

  • a beneficiary is a party to Family Court proceedings: rather than assets being released progressively to the beneficiary over time (and after the Family Court proceedings end), the beneficiary may receive their distribution while the proceedings are continuing. The assets may then become part of the marital asset pool to be divided.
  • a beneficiary is insolvent:, rather than assets being released to a beneficiary sometime in the future (and after the beneficiary is discharged from bankruptcy), the beneficiary may receive their distribution while bankrupt. The assets could then fall under the control of the trustee in bankruptcy and become available to creditors owed money by the bankrupt beneficiary.

Who administers the estate where the deceased dies intestate?

It is not simple to determine who is most eligible to apply for administration. The court has a very wide discretion as to whom it will grant administration, but in most cases whoever is entitled to the largest share in the estate is considered the most suitable.

Administration is an important role because administrators are in charge of splitting and distributing the assets. This can be done in many different ways, including where it is in the administrator’s own interests rather than the interest of all beneficiaries. While this situation can be disputed by contesting the estate, it can cause greater administration costs and will also increase the time required to distribute the estate.

Efficient and timely administration of the estate is important because, until an administrator is appointed, the beneficiaries of the estate will not have access to any estate assets, including cash in the deceased’s name. This may be a problem in single income households, where members of that household may have to wait until Letters of Administration are granted before they can access the deceased’s assets.

Taxation

Tax is a major consideration in the estate planning process to ensure that the potential taxation impact of distributing particular assets is reduced to a minimum. Where a person dies intestate, it is much more difficult to plan for, and effect, distributions in a tax effective way.

Depending on the marginal tax rates of different beneficiaries, intestacy could potentially lead to an overall imbalance in the distribution of an estate due to higher rates of tax payable by some beneficiaries.

In contrast, when preparing a will, the will maker and their advisers can assess opportunities to manage, and reduce, the tax implications of assets passing to the deceased’s beneficiaries.

SUMMARY:

It is clear that dying WITHOUT making a legal will can, in many cases lead to one or more of the following issues:

  • Your wishes are unknown, uncertainty prevails
  • Certain people may inherit who you would prefer not to
  • Dealing with your estate often takes a lot longer than if you had written a will
  • Families can be torn apart, sometimes irrevocably, by squabbles over who gets what
  • Additional (legal) costs are usually incurred which often comes from your estate

These and many other issues can be simply avoided by making a Will.