October 2006 - view full issue
10 Problems with Dying Intestate
- No executor. An executor named in a will has immediate powers to deal with the estate of the deceased. In an intestacy, no one has the power to deal with the property until a court appoints someone as the administrator of the estate.
- Increased potential for disputes. A person applying to be the administrator of an intestate estate must obtain the consent of every person with an equal or prior right to apply. For example, a child of the deceased must obtain the consent of his siblings to be appointed as the administrator. If the consent is withheld, the matter may have to be settled in court.
- Bonding requirement. The administrator must be bonded unless all of the beneficiaries consent to dispense with the bonding requirement. The Court may also dispense with the requirement in certain low-risk situations. A bond may be obtained for a fee from a commercial bonding company, as long as the applicant is bondable.
- No guardian. A will can be used to designate guardians for minor children. In an intestacy, a guardian must be appointed by the court. Delays are to be expected and disputes over guardianship are much more likely to arise.
- Inadequate provision. The distribution of an intestate estate follows a scheme mandated by law, which may leave some beneficiaries poorly provided for. For example, where a person dies leaving a spouse and two or more children, the spouse is entitled to the first $65,000 of the estate, a life interest in the matrimonial home, and one-third of the balance of the estate. Depending on the circumstances, this may not leave the spouse enough to survive on.
- Increased taxes. An easy way to defer income taxes on death is to leave appreciated property to a spouse. On an intestacy, a large portion of the estate may be left to children, resulting in a higher tax liability to the estate.
- Early vesting in children. Many parents who make wills use trusts to defer distribution of property to children until an age at which they are likely to have the maturity to handle the money well. A child of a parent who dies intestate is entitled to receive his or her entire share when he or she turns 19.
- Problems with multiple deaths. The intestate distribution scheme often leads to inequitable results where more than one family member dies at the same time. For example, A and B are married and have no children. If they both die in a car accident, A, being the older spouse, will be considered to have died first, leaving everything to B. The entire estate will be distributed to the family of B, and the family of A will receive nothing.
- Problems with multiple marriages and blended families. Intestacies in cases of multiple marriages and blended families can also lead to unfair treatment. For example, A's marriage to B is A's second marriage. A and B have two children together, and also raise A's one child from A's prior marriage. A and B have their home and bank accounts in joint tenancy. When A dies, B takes the assets by right of survivorship. When B subsequently dies without a will, her estate goes to her two children. A's child receives nothing.
- Problems with common law spouses. British Columbia's intestate laws affords the same rights to a common law spouse as it does to a married spouse, if the couple lived together in a marriage-like relationship for a period of at least two years before the death of one of them. Depending on the facts, a common law spouse of a person who died intestate may end up in an awkward dispute with other family members over whether they have any claim to the estate.
Your Estate Matters is produced by the Wealth Preservation Group at Clark Wilson. The information and links in this newsletter should not be treated by readers as legal advice and ought not be relied upon without further, detailed legal counsel being sought.