32% of Americans have an estate plan in 2024. But what happens to the other 68% of the American population? Well, they are facing significant risks. Their medical decisions, minor children guardianship, pet ownership, and asset distribution are going to be determined based on default state laws. This can cause several negative consequences, from family disputes to unintended beneficiaries to financial consequences. Let’s discuss all seven of the risks you may face if you do not have an estate plan.
What is an estate plan?
An estate plan is a set of documents that says what should happen if you become incapacitated, what should happen to your assets when you die, guardianship for children and pets, and final arrangements such as funeral wishes. Some of the documents that may be included in a person’s estate plan may be:
- A last will and testament
- Trust(s)
- Power of attorney
- Advance healthcare directives
Remember, there are several different types of wills and trusts, so there are a lot of different options for those two types of documents.
What is intestacy (the legal term for dying without an estate plan)?
Intestacy is the legal term for what happens when a person dies without an estate plan. The state determines what happens to the decedent’s (the person who died) stuff. States have specific statutes dedicated to explaining what you can expect for what should happen if you die without an estate plan. For instance, 755 ILCS 5/2-1 says exactly what will happen to your stuff if you die without an estate plan in Illinois. If you die with a spouse and one child, half of your stuff goes to your surviving spouse, and the other half goes to your child. If you die without a spouse, child, or grandchild, your estate will go to your parents and siblings in equal parts. And so on and so forth. Each state dictates how assets will be distributed in this way and it may differ slightly depending on your state.
Risk #1: Family disputes and disagreements over asset division
One of the most common risks of not having an estate plan is family disputes and disagreements over asset division. Let’s use an example to illustrate. John is 82 years old and has always promised his son, Adam, his expensive car collection. However, according to intestate laws, all assets will be distributed fairly between children. John’s other child, Melissa, wants the cars to sell, even though she knows John always promised Adam the cars. This creates significant tension and disputes between Adam and Melissa–Adam, who wants to keep the car collection as promised by his dad, and Melissa, who wants to sell the car collection for her own use.
Risk #2: Unintended beneficiaries inheriting property
As we stated above, intestacy laws apply when you die without an estate plan. This means your stuff passes to beneficiaries, which is dictated by state law. Let’s use an example to demonstrate. Let’s say your state’s intestate law says assets will be distributed 50-50 to children and surviving spouse. However, what if one spouse was estranged and hadn’t talked to you in over 30 years? The other siblings or spouse may disagree with the estranged child getting any portion of the assets, and thus, disputes may arise.
Risk #3: Complications for blended families or unmarried partners
In most intestacy laws (the laws that dictate your stuff when you die without an estate plan), the first order of distribution, when a person dies, is to distribute their stuff to their spouse and their children. But what happens if there are step-children or people who are unmarried? As you can see, this can lead to disputes over property division, guardianship of children, and even basic recognition of the relationship. For example, an unmarried partner who contributed significantly to the household and shared parenting responsibilities may be legally excluded from inheriting any assets from their partner or making decisions about the children they helped raise. This not only causes financial hardship but can also lead to painful legal battles and emotional distress during an already difficult time.
Risk #4: Lack of control over guardianship for minor children
This one is pretty straightforward–without an estate plan, your wishes for the guardianship of your minor children may not be what you want. A court makes a determination on where the child should go based on the child’s best interests. The law also generally requires family, close friends, and godparents to be the guardian. As a last resort, there may be a state-appointed guardian. As you can see, this is a scary topic to think about, and if your friends are more like your family and you’d be devastated in your child’s guardian became your mom, you may want to consider an estate plan.
Risk #5: Pets may not be cared for as desired
Same thing goes for pets. Without an estate plan, it’s unclear what will happen to your pets. Most states consider pets as property, so they will likely be distributed like any other piece of your estate. In addition, most states say that a pet cannot inherit assets from a person. So if you have no family at all and are hoping your pet gets your stuff when you die, that’s generally not going to happen unless you have an estate plan. The pet will likely go into a shelter unless a friend willingly chooses to take ownership of the pet.
Risk #6: Financial consequences
There are also financial consequences of not having an estate plan, such as probate costs, tax consequences, and potentially other court fees. Without some type of trust, your assets will have to go through probate, which comes with costs. Probate is the court process of distributing your assets, which can include filing fees, attorney fees, and other costs. Depending on the size of your estate, you may also be subject to significant tax consequences without an estate plan. This can significantly reduce the amount of inheritance your beneficiaries get.
Risk #7: No say in medical decisions
Without an estate plan, if you become incapacitated and cannot make medical decisions for yourself, your state generally has a list of priority decision-makers. For example, in Illinois, here is the order of priority of people who should make decisions on behalf of a person:
- (1) the patient’s guardian of the person;
- (2) the patient’s spouse;
- (3) any adult son or daughter of the patient;
- (4) either parent of the patient;
- (5) any adult brother or sister of the patient;
- (6) any adult grandchild of the patient;
- (7) a close friend of the patient;
- (8) the patient’s guardian of the estate;
- (See 755 ILCS 40/25)
Even if you love your spouse, child, brother, sister, etc. and you trust them thoroughly, they still may not make the decision that you would want to make for yourself, which is why an estate plan is important.
The bottom line on the risks of not having an estate plan
The bottom line is that your state’s default laws will dictate what happens to you, your children, your pets, and your stuff when you become incapacitated and/or die. If the default laws are not to your liking, you may be SOL. In addition, even if you are OK with the default laws, there is potential for family disputes, financial consequences, and undesired medical decisions. So, it goes without saying that having an estate plan is a great idea for truly anyone! While it may not be the most fun thing in the world to do, it’s important, just like any other legal document.
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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