Intestacy, Wills, Trusts, Estates, and Probate—Overview
Because the dead can neither use nor retain property, there must be legal procedures by which the decedent's property can be transferred to new owners, referred to as beneficiaries. Before formal legal procedures evolved to transfer property from the decedent to the living, when the ownership of property was determined by possession, the beneficiaries were those who happened to be around the recently deceased—usually, the decedent's relatives, especially the spouse and children.
Nowadays, the law determines, in detail, how property is transferred after death. Intestacy, wills, trusts, and nonprobate instruments, such as life insurance policies, are the means by which property passes from someone who dies, the decedent, to others—others usually being family, friends, and charities—and governments in the form of taxes.
The United States Constitution does not explicitly grant anyone the right to bequeath property. Indeed, the United States Supreme Court stated, in Irving Trust Co. v. Day, 314 U.S. 556, 562 (1942), that there was nothing in the Constitution that prevented governments from limiting, conditioning, or even abolishing the power of testamentary disposition. However, in Hodel v. Irving, 480 U.S. 704 (1987), the Supreme Court held that the escheat provision of the Indian Land Consolidation Act of 1983, where land reverted to the Indian tribe rather than to the decedent's heirs if it was less than a certain value, was an unconstitutional taking of property without just compensation. And it is generally held that the right is given to the decedent to transfer property, not to the beneficiaries to receive it. Nonetheless, since it is not explicit in the Constitution and as the differing Supreme Court decisions demonstrate, the right to bequeath depends on the latest Supreme Court ruling. In any case, the power to transfer property to one's heirs is considered a civil right rather than a natural right.
States have broad authority to regulate the transference of wealth from the decedent to beneficiaries, because states have major jurisdiction in creating contract and property laws. Consequently, states also have jurisdiction over probate, which is the legal process by which either wills are executed so that property is transferred to beneficiaries and creditors and taxes are paid, or the property is distributed according to the state's statute of descent and distribution if the property is not covered by a will or nonprobate contract.
Under early English law, a testament was the conveyance of personal property by will, but nowadays the disposition of real and personal property is not distinguished, although the redundant phrase "last will and testament" persists. However, there is still some terminology that distinguishes between realty—real property—and personalty—personal property. A devise is the transfer of realty by will and a devisee is a beneficiary receiving realty through a will. A bequest or legacy is the transfer of personal property by will and a legatee is the receiver of the personal property.
Many methods of transferring property avoid probate, including:
- joint tenancy, where 2 or more people have an undivided interest with rights of survivorship in real estate or some other property, such as a bank account;
- contracts with payable-on-death (POD) provisions, known as nonprobate instruments, such as life insurance policies or Individual Retirement Accounts (IRAs), that allows the owner of an account to specify a beneficiary;
- and inter vivos trusts, where a trustee holds and manages property for the benefit of its beneficiaries.
Trusts can also be created by will but all property going into such testamentary trusts generally passes through probate—hence, most estate planning involves the use of inter vivos trusts.
An inter vivos trust (aka living trust) is a trust that is created by someone—the grantor—while still alive. Conveying property through a trust allows more control over how and when the property is transferred to beneficiaries. For instance, the trust, managed by a trustee named in the trust document, can retain property and only pay heirs the income from the trust, or the trustee may have discretion in paying the beneficiaries to maximize earnings and minimize taxes.
Probate Transfers by Intestacy and Wills
Intestacy is the default distribution scheme, where the decedent left no valid will, in which case the decedent is said to have died intestate, or the decedent had a valid will but it did not include all of the decedent's property.
Who gets what under intestacy is determined by the state's statute of descent and distribution, which generally gives preference to the spouse and descendents, usually children—otherwise known as the heirs (or heirs apparent if the person is still alive) or next-of-kin, over other relatives, and relatives over others. Under common law, the spouse was considered to have curtesy or dower rights, but was not technically considered an heir. However, the statutes of descent and distribution make no mention of curtesy and dower, and, nowadays, the spouse is just considered an heir with the highest priority.
Because statutes of descent and distribution gives, after the spouse, direct descendents preference over others, the law often uses the technical term issue to refer to all direct descendents, which would include children, grandchildren, great-grandchildren, and so on. Hence, almost all statutes of descent and distribution use the following priority: spouse, decedent's issue, parents, issue of parents (which would include the decedent's siblings).
The relevant state law for the transference of personal property is the state in which the decedent was domiciled at the time of death. The relevant state law for real property is the state in which the property is located.
A person that executes a valid will is referred to as the testator. (Testatrix had been used to refer to females who execute a valid will, but the modern trend has been to use testator for both males and females; likewise, for terms such as executrix, administratrix, and so on.) The person who dies with a valid will is said to have died testate.
If property is transferred by either will or intestacy, then it must go through probate, a process by which creditors and taxes of the decedent are paid, and property distributed by the personal representative of the estate under the supervision of the probate court.
Property that is passed by probate administration is called, appropriately enough, probate property and nonprobate property is conveyed outside of probate, such as the through the use of nonprobate instruments or joint tenancy. If the decedent only had non-titled personal property, then, as a practical matter, it need not be probated, since for personal property, possession is ownership, although it may be subject to the claims of the decedent's creditors.
All states also have small-estate probate statutes that allow an estate with insignificant assets to be probated with minimal supervision of the probate court, which both expedites the transference of property and reduces probate costs.
In Europe, property is passed by universal succession, where the title to property passes by operation of law to the heirs without the need for probate or other court involvement. The heirs are responsible for paying the decedent's creditors and taxes, and estate taxes, and to distribute the property to any other beneficiaries. In the United States, only the state of Louisiana allows universal succession, but the probate court must be petitioned for permission. Universal succession is also allowed by other states in limited circumstances. For instance, in California, property can pass to a spouse through universal succession.
Probate has several main objectives:
- validates the will as being the actual will of the deceased;
- it allows creditors of the decedent to file claims for payment;
- it transfers property titles to the beneficiaries;
- then it distributes the decedent's property according to law, if the decedent was intestate or otherwise according to the will;
- and to take evidence and rule on any disputes or challenges to the will.
The process of probate begins when the death certificate is presented to the probate court (sometimes called surrogate's court, orphan's court, chancery court, or simply the probate division of the district court).
To pass property through a will or by intestacy means that it must pass through probate, which is the jurisdiction of the probate court.
The decedent's estate is administered by a personal representative. If the will names the personal representative, then he or she is called the executor of the will. If the person dies intestate or the will does not appoint an executor, then the probate court will appoint an administrator who will execute the decedent's estate. The personal representative is most often a close relative or friend of the decedent, and must post a bond if the will does not waive it. The court must issue letters testamentary to an executor named in the will or letters of administration to an administrator selected by the court, which legally allows the personal representative to act on behalf of the estate.
The personal representative of the estate inventories the decedent's property, pays taxes of the estate, which is a separate taxable entity from the decedent's personal tax liability, and the tax liabilities of the decedent before death, to give notice to the decedent's creditors so that they can file a claim for payment, pays the creditors who file a valid claim, and carries out instructions from and reports to the probate court. The probate process ends when the personal representative gives a final accounting to the probate court.
Probate can be formal or informal. Formal probate (aka notice probate, solemn probate) requires that the personal representative get permission from the court to do just about everything, which includes property appraisals, debt payments, and the actual distribution. Informal probate (aka ex parte probate) allows the personal representative to administer the estate without going to court. He has the same powers that a trustee has over the trust.
Obviously, informal probate is much faster and cheaper than formal probate, but informal probate depends on trust, so it is only allowed if the personal representative is a close relative of the decedent and most of the beneficiaries are also relatives. However, any party in interest can petition the court for a formal probate at any time.
After everything has been done—creditors and taxes paid, property distributed to the beneficiaries, and so on—the personal representative must petition the court for a discharge to be relieved of any further fiduciary responsibility as the personal representative of the estate.