Estate planning and after-death laws vary by state, and these differences can significantly impact how your loved one’s estate is handled after their death. Below are some key areas where state laws can differ, affecting wills, probate, taxes, and other aspects of estate planning:
1. Probate Process
- Probate laws vary widely across states, affecting how an estate is settled, how long the process takes, and how much it costs.
- Small estate exemptions: Some states offer simplified probate processes for small estates (with a value below a certain threshold). The definition of a “small estate” varies—ranging from a few thousand dollars to over $100,000, depending on the state.
- Probate timelines: The length of time for probate to be completed also varies. In some states, probate can take several months, while in others it may be longer depending on the complexity of the estate.
2. Inheritance and Estate Taxes
- State inheritance and estate taxes differ. While the federal government only taxes estates exceeding a certain threshold (currently over $12.92 million in 2023), some states have additional taxes:
- Estate taxes: States like New York, Massachusetts, Washington, and Oregon impose estate taxes on estates above a certain value, with the threshold and tax rate varying by state.
- Inheritance taxes: Some states, like Iowa, Kentucky, Maryland, Nebraska, and New Jersey, impose inheritance taxes. This tax is paid by beneficiaries, and the rate may vary depending on the relationship between the beneficiary and the deceased.
- State exemptions: Each state sets its own exemption amount for estate or inheritance taxes, meaning only estates above that value are taxed.
3. Wills and Testamentary Documents
- State laws govern the creation, validity, and execution of wills. Common variations include:
- Witness requirements: Most states require at least two witnesses to sign a will, but some may require three. Other states may allow self-proving affidavits that streamline the probate process.
- Holographic wills: Some states, such as California, Texas, and Virginia, accept holographic wills(handwritten wills without witnesses), while others do not recognize them at all.
- Oral wills: A few states may recognize oral wills (nuncupative wills) under specific conditions, though this is increasingly rare.
4. Intestacy Laws (When There Is No Will)
- Intestate succession laws vary significantly between states and determine who inherits if someone dies without a will.
- Spousal rights: In most states, the surviving spouse is entitled to a portion of the estate, but the amount varies. For example, in California, a surviving spouse may receive all community property and part of separate property, while in New York, the spouse receives the first $50,000 plus half of the remaining estate.
- Distribution to children: Some states distribute equally among all children, while others might give more to biological children than to stepchildren or children from previous relationships.
- Rights of non-relatives: In some states, unmarried partners or close friends might inherit only if specifically named in a will. In contrast, other states might prioritize biological relatives even if there is a significant relationship with a non-relative.
5. Community Property vs. Common Law States
- The laws on how property is owned and distributed between spouses differ based on whether a state follows community property or common law principles:
- Community property states: States like California, Texas, Washington, and Arizona treat all assets acquired during marriage as jointly owned by both spouses. Upon death, half of the community property automatically goes to the surviving spouse, regardless of the will.
- Common law states: In most other states, property acquired during marriage is owned by the spouse whose name is on the title. Inheritance depends on the deceased’s will or intestate laws.
6. Power of Attorney and Advance Healthcare Directives
- Healthcare directives and powers of attorney can differ in terms of what’s recognized and how they must be executed:
- Advance healthcare directives: States have different requirements for living wills or healthcare proxies, such as how many witnesses are required and whether a notary is necessary.
- Power of attorney: Some states offer broader or more limited powers to agents designated through a durable power of attorney, with variations in how financial and healthcare decisions can be made on behalf of the deceased.
7. Survivorship Rights (Transfer on Death)
- Some states allow for Transfer on Death (TOD) designations on assets like bank accounts, real estate, and securities, making probate unnecessary for those assets. However, this option is not available everywhere:
- Real estate: States like Arizona, California, and Ohio allow TOD deeds for real estate, where the property automatically transfers to the named beneficiary upon death.
- Bank accounts and securities: Most states allow TOD designations for bank accounts and stocks, but how the transfer is executed can vary.
8. Spousal Elective Share
- Spousal rights to the estate, regardless of the will, differ from state to state:
- Many states allow a surviving spouse to claim an elective share of the estate, even if the will disinherits them. The amount varies by state (usually around one-third to one-half of the estate).
- In community property states, the spouse is automatically entitled to half of the community property, regardless of the will.
9. Digital Assets
- Laws regarding the treatment of digital assets (e.g., social media accounts, emails, cryptocurrencies) are still evolving and can vary by state:
- Some states, like California and Delaware, have passed specific laws allowing the executor or designated person to access a deceased person’s digital assets, while others rely on federal laws or the terms of service agreements with online platforms.
10. Homestead Exemptions
- Many states offer homestead exemptions that protect a portion of the deceased’s primary residence from creditors during probate, but the amount and eligibility criteria vary:
- States like Florida and Texas have generous homestead protections, which allow the surviving spouse or children to remain in the family home.
- Other states may limit the value of the home that’s protected, leaving some of the property vulnerable to creditors.
11. Revocable Living Trusts
- Trust laws vary between states, especially regarding how trusts are established and administered:
- Some states have streamlined processes for revocable living trusts that help avoid probate entirely, while others may require more detailed compliance or registration of the trust.
- In states like Florida, trusts are commonly used as a probate avoidance tool, whereas in other states, probate might not be as costly or cumbersome, making trusts less necessary.
Why It’s Important to Know Your State’s Laws:
Understanding the specific laws in your state is critical for effective estate planning, as they determine how your assets will be distributed, how taxes are applied, and whether your plans will be honored as you intended. Consulting with a local estate planning attorney can help you navigate these differences and ensure your estate plan is tailored to your state’s laws.
If you move to another state, it’s important to update your estate plan to ensure it complies with the new state’s laws, as some documents (like wills, trusts, and powers of attorney) may need revisions.