Many people die without having designated in a Will who should take their property, but that does not necessarily mean that their goals are not accomplished. Will Substitutes sometimes do the work of a Will.
The most common Will Substitutes are funded trusts, joint tenancies, tenancies by the entirety, and various kinds of pay-on- death or transfer-on- death accounts, contracts and deeds.
For example, at the death of a joint tenant, that person’s interest in jointly owned property automatically becomes the property of the surviving joint tenant(s); and when the owner of a pay-on- death account dies, that account is payable to the person who the decedent designated when setting up or modifying the account. Unfortunately, some people confuse joint tenancies with tenancies in common, and many fail to keep all their pay-on- death designations current.
A decedent’s property that does not pass by Will or Will Substitute passes instead in accordance with a statutory formula. Think of this as a standardized back-up Will that the state legislature has written on behalf of anyone who dies “intestate,” that is, without a Will.
Despite the legislature’s good intentions, property controlled by intestate rules sometimes passes to people the decedent would never have selected. For example, any such property passing to the decedent’s children will be shared by them equally, even if the decedent had made clear (but not in a valid Will) that he did not want a particular child to get anything — and even if that child had earlier talked the parent into giving that child “his inheritance” before the parent died.
Intestacy rules vary from state to state. Consider this hypothetical fact pattern: Ms. Client’s first husband dies, leaving Ms. Client with two very young children. Eventually, Ms. Client marries Husband #2, who raises Ms. Client’s children as though they are his own, but does not formally adopt them. Ms. Client eventually dies, leaving all her property to Husband #2, expecting that he will eventually leave everything to Ms. Client’s children. But if Husband #2 dies without leaving a Will or a Will Substitute, none of his property — not even the property he received from Ms. Client — will pass to Ms. Client’s children. This is because they are his stepchildren, not children.
If Husband #2 in the above hypothetical is not survived by at least one grandparent or a grandparent’s descendant, his entire estate — including the property received from Ms. Client —will pass to the state. Again, Ms. Client’s children will take nothing. In some states, Husband #2’s property would pass to his stepchildren rather than to the state, but not in Hawaii. Some states recognize informal or equitable adoptions to establish heirship, but Hawaii does not.
Our Supreme Court ruled in 1988 that although adoption by custom was recognized prior to 1841, keiki hanai cannot qualify as heirs today. This ruling prevents heirship even where there is clear and convincing evidence that the decedent expected and wanted a hanai child to inherit part of the estate.
The main point of this month’s column is that without a Will or Will Substitute, a person’s property could end up in the wrong hands.
As always, this blog does not contain legal advice and you should not rely on any of the above information to determine what is in your own best interest.
PHOTO: The above photo was taken by Dayva Keolanui at Sunset Beach, on the North Shore of Oahu.
John Roth is the founder of Hawaii Trust & Estate Counsel, a statewide estate planning law firm with offices in Waimea, Hilo, Kona, and Honolulu. He has resided in North Hawaii since 2008.
What assets should you put in your trust? Avoiding probate, planning in case of incapacity, and making things as easier for loved ones after your death are all things to consider.