Have you ever wondered what happens to someone’s estate if they die before they make an estate plan? Something still has to be done with all of their assets, and state law is responsible for determining exactly what procedures should be followed. If someone passes away without a plan, this is known as dying intestate, which turns the responsibility for these decisions over to state law.
This is starkly different from when people create an estate plan on their own. They can decide which beneficiaries should get specific assets or if they want to leave money to charity. They can put assets into a trust, make medical decisions and set up powers of attorney. State law is not going to do any of that, so estate planning gives people far more options.
Can it impact your taxes?
Yes, dying intestate can impact your taxes—specifically because you do not have a chance to minimize the amount that will have to be paid.
For example, the total value of your estate is factored in when determining how much needs to be paid in estate taxes. But if you put money into an irrevocable trust, removing it from your estate, you can reduce the overall value and reduce the tax burden.
However, you have to plan in advance to do this. If you die without an estate plan, state law is simply going to allocate a greater portion or your assets into tax payments, potentially keeping that money away from your beneficiaries and family members.
This is just one of the benefits of creating an estate plan. Be sure you know exactly what legal steps to take.