My wife and I have recently been working on updating our will with our first child’s birth earlier this year. As we reviewed our assets, it got me thinking, what happens to your investment portfolio when you die without a will?
The most significant factor that determines what happens to your investment portfolio if you die without a will is where you live. Each state has different policies on what happens to assets when someone dies without a will. Consult your local government for an exact answer to what will happen if you die without a will.
In this article, I’ll review what happens to your investments when you die, depending on whether you had a will and where you live.
Intestacy: when you die without a will
Most people have never heard of the word “intestacy,” which is the term used to refer to the situation when someone dies without a will.
The single biggest factor that determines what happens to your assets when you die without a will is where you live, and presumably, where you die. This is because different countries and different states take their unique approach to handle the division of your estate’s assets in these situations.
Intestacy is a very complex issue, and as we have covered, it varies considerably from state to state in the U.S. That being said; generally the assets of the estate where there is no will tend to flow to surviving family members. Often the surviving spouse is given priority, followed by surviving children and then extended family.
What if I die without a will and have no family?
If you die without a will and have no family that can be found, the likely scenario is that your assets will revert to the government.
The financial cost of dying without a will
Probate is the process of finalizing how the assets of the deceased will be distributed and to whom. This process is supervised by the courts and allows interested parties to make a claim to a part of the estate.
Probate is an expensive process. Your surviving family, your spouse, or children are the ones who would need to pay the probate costs.
Probate costs may include any of the following.
Cost to hire a lawyer.
Potential executor fees.
Cost to appraise the assets of the estate.
Other fees that arise during the probate process.
All in, the cost of probate generally costs in the range of 4% to 7% of the value of the estate. If your estate was valued at $1,000,000 that could range between $40,000 to $70,000. Of course, depending on the circumstances, the cost could be much more or less than that.
Ways you can ensure your assets are left to the right people
If you don’t want the government to decide who gets what after you die, there are some proactive measures that you can take.
Hire a lawyer and create a will.
Adding joint ownership to assets.
Ensuring you have up to date beneficiary information.
Create a will
The simplest way to ensure your assets are divided up the way you want after you die is to hire a lawyer and draw up a legal will.
Yes, this will cost money. The estimated average cost of hiring a lawyer to create a legal will ranged from $940-$1500. That number will vary depending on the complexity of your assets and estate.
Having a will follows the same logic of having life insurance. It is not about you. It’s about making life easier on your loved ones when you die.
With a life insurance policy, you incur all the costs by paying the premium, and your beneficiary gets all the benefits through the payout.
A will is the same way. You incur all the costs (both time and money) of setting up a will, and your survivors reap all the benefits from a simplified probate process.
If you can’t get motivated to set up a will, think about the people in your life who would be worse off because you didn’t bother to set one up.
Adding joint ownership on certain assets
Let’s say that you want your investment portfolio to be left to your spouse when you die. One way to accomplish that would be to add that person as a joint owner of your investment accounts.
If someone is a joint owner on the account, when you die, the account automatically passes onto them as they already legally owned half of the assets in that account.
That is an important decision you need to make. If you add someone as a joint owner on an asset, they will have a legal claim to half of the value of that asset even while you are alive.
That could get you into hot water in a number of ways.
If your relationship deteriorates with that person, you may regret adding them as a joint owner of the asset.
If the person you added as a joint owner to the asset faces some legal liability or claim against their assets by a creditor, all of that person’s assets could be at risk, potentially including the assets you have given them joint ownership to.
Think long and hard about who you give joint ownership to.
Ensure you have up to date beneficiary information.
If you have life insurance policies or a pension, you will have a beneficiary attached to those assets. That means there will be a person or persons who will receive payment upon your death.
Most people realize that insurance policies have a beneficiary. After all, that is the entire point of having an insurance policy.
If you have a pension, you will also have a beneficiary. Many pension plans will continue paying some portion of your monthly pension to your beneficiary after you die. How much and for how long they will receive payments depends on the details of your pension.
For insurance policies and pensions, it’s critical to ensure the right person or persons are listed as beneficiaries.
Bonus: Make sure your spouse can access all your accounts
When someone dies, one of the most frustrating tasks is closing out all of their accounts and settling all of their bills.
If the power bill is in your spouse’s name, that needs to get switched over. If there is an outstanding balance on a credit card, that needs to get taken care of.
The last thing you want is for your spouse to have no idea how many accounts need to be closed and how to access them.
My wife and I recently bought a safer deposit box at a bank where we keep important documents. One of those documents is an “if I die” list. On the list are the account number, password, and username for all of your accounts. Ranging from the electricity bill to our investment accounts.
If anything were to happen to either of us, we would know exactly what accounts need to be closed and how to access them.
I’m not saying you need a safety deposit box, but you should communicate with your spouse about how they could access all of the accounts in your name when you pass.
What happens to your investments when you die? That depends on you
When you die without a will, what happens to your assets, including your investment accounts, will largely be determined by the laws of your local government.
There are some simple steps you can take today to ensure your assets are passed down to the right people in the most efficient manner possible. The most important step you can take is to have a lawyer draw up a legal will that will outline who gets what.
It takes time and money, but this is not something you are doing for yourself. This is something you are doing for the people you love.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions