New Bern, N.C., Estate Attorney, Cecil Harvell
DYING WITHOUT A WILL
Harvell and Collins, P.A., is always eager to counsel its clients regarding the advisability of estate planning. A good starting point for any discussion of estate planning is, of course, the execution of a Last Will and Testament. It is always sound practice to execute a valid Will during one’s lifetime. This ensures that, when a decedent passes away, the transfer of the decedent’s assets is tailored to his or her specific needs and desires. The individualized distribution that may be accomplished through a Will is very important, since the circumstances surrounding a person’s assets and beneficiaries are completely unique to that individual.
While it is a much safer practice to execute a Will which clearly and unequivocally indicates the decedent’s wishes regarding his or her property, in many cases the decedent simply fails to do so. This may be for a number of reasons. In some cases, the decedent may think that he or she does not need a Will. In other cases, the decedent may have intended to execute a Will “someday,” but simply never got around to it. Or, perhaps the decedent executed a written document under the impression that it was a legally valid Will, but the writing failed to conform to the requirements of the North Carolina General Statutes that govern the execution of Wills. In any case, it is important to understand what happens when a person dies without a valid Will.
When a person dies without a valid Will, that person is said to have died intestate. In North Carolina, there are statutes which govern the distribution of assets owned by an individual who dies intestate, called the Intestate Succession Act. This Act applies to all of those assets which would otherwise be devised according to the terms of a Will, had one existed. This includes most bank accounts, brokerage accounts, stocks, bonds, vehicles and other personal property. It also includes any and all real property, such as houses, condominiums, and any percentage interest in such properties. Not included in property transferred through intestacy are such items as trust assets, life insurance proceeds, funds in an IRA or 401(k) account, accounts that are paid-on-death or transfer-on-death, and property owned in joint tenancy with right of survivorship or as tenants by the entirety.
WHO INHERITS WHAT?
The most important function of the Intestate Succession Act is to provide a framework for the transfer of the decedent’s property at death. The operation of the statute is very strict. As a result, instead of the decedent’s property being devised in a very individualized way pursuant to a Will, the transfer becomes a matter of “one size fits all” as the statute applies to everyone who dies intestate with equal force, regardless of the individual’s wishes. While the Intestate Succession Act is inflexible in its application, it attempts to distribute the decedent’s property in as fair and equitable a manner as possible.
Under the Act, there is a general statutory scheme that establishes an order of priority as to who receives the decedent’s property. The order of priority is as follows: (1) spouse; (2) children; (3) parents; and (4) siblings. This order of priority makes sense to a certain extent. For instance, it is important that the spouse enjoys first priority of inheritance, since the spouse often incurs the greatest financial hardship when his or her loved one passes away. However, the spouse’s priority is not totally exclusive of the other classes above. The fact that there is a surviving spouse does not mean that the decedent’s spouse receives everything and the children and parents of the decedent receive nothing. Rather, the division of assets depends on who survives the decedent. Here are some of the different scenarios covered by the statute when the decedent is survived by the spouse:
Spouse and one child: The spouse inherits one-half of the decedent’s real property, the first $60,000 of the decedent’s personal property, and one-half of the balance of the personal property.
Spouse and two or more children: The spouse inherits one-third of the decedent’s real property, the first $60,000 of the decedent’s personal property, and one-third of the balance of the personal property.
Spouse and parents only: The spouse inherits one-half of the decedent’s real property, the first $100,000 of the decedent’s personal property, and one-half of the balance of the personal property.
If the decedent is not survived by the spouse, then the next class in line inherits all of the decedent’s assets, exclusive of the other classes. For example, if the decedent is survived by only children and parents, the children take everything in equal shares and the parents inherit nothing. If there are surviving parents and siblings, but no children, then the parents take everything and the siblings take nothing.
If the decedent dies without a spouse, children, parents, or siblings, then members of the extended family, such as grandparents, aunts and uncles, may be eligible to inherit. While this is a rather uncommon situation, it does sometimes occur. In such cases, the order of inheritance is determined by reference to the statute, which thoroughly covers all contingencies.
PREDECEASED HEIRS AND DISTRIBUTION AMONG CLASSES
It is sometimes the case that a person who would stand to inherit as an heir under the laws of intestacy has passed away prior to the death of the decedent. For example, a decedent dies with no spouse, one living child, and one child who predeceased the decedent. In this case, the nearest lineal descendants of the predeceased child “step in” to take that child’s place and inherit from the decedent. Let us say that the child was an adult woman with two children of her own (who are therefore grandchildren of the decedent). In this case, the decedent’s living child inherits half of the estate, and the two grandchildren each inherit one-fourth of the estate, as they divide equally the one-half share that their mother would have otherwise received, had she been living at the time of the decedent’s passing.
A slight change to the previous example illustrates a feature of intestate succession that some may find surprising. Say the decedent had three children during his lifetime, but two of the children preceded him in death, with only one child surviving. The first predeceased child had two children of his own, and the second predeceased child had three children. All five of these grandchildren of the decedent are still living.
In this scenario, who inherits? As in the previous scenario, the living child of the decedent inherits one-third of the estate. As to the five surviving grandchildren, in North Carolina, the statute directs us to divide the remaining two-thirds of the estate among them, equally. So, in this example, each grandchild gets one-fifth of two-thirds of the estate, which is equal to a two-fifteenths share for each of the five surviving grandchildren. This framework of succession is known as per capita at each generation. It treats everyone at the last generation who inherits – in this case, the grandchildren – completely equally. This is the framework adopted by North Carolina’s Intestate Succession Act.
It is worth noting that many people choose to depart from the per capita at each generation model when they execute their Wills. Instead, they choose to employ the per stirpes model of distribution. Per stirpes succession works in much the same way as the per capita at each generation model. The key difference is that surviving members of the last generation to inherit are not treated equally. To illustrate, consider again the example set forth above. Under per stirpes succession, the living child of the decedent still inherits one-third of the estate. However, instead of all five grandchildren sharing equally in the remainder, the one-third shares of each deceased parent is divided among the issue of each parent. The two children of the first predeceased child would together inherit one-third of the estate, so their respective shares would be equal to one-sixth of the total estate. The three children of the second predeceased child would together inherit the remaining one-third of the estate, so they would each inherit one-ninth of the total estate. Though the treatment of the grandchildren here is not as egalitarian as in succession by per capita at each generation, many people employ the more traditional per stirpes method of distribution when making their Wills because they simply prefer this result.
The main takeaway of this discussion is that had the decedent taken the step of executing a valid Will, he or she would have been able to choose the option he or she preferred. When no Will is executed, the decedent is locked in to the framework prescribe by statute, which is per capita at each generation.