Skip to main content

The Heirless Estate: What to Do and When to Do It

August 12, 2020

Estate planning is all about the disposition of your assets and, for many people, this involves determining how to divide assets among heirs. What happens, though, when you don’t have a spouse or children, or other obvious heirs to your estate? Unfortunately, many people in this situation don’t feel it’s necessary to plan where their assets will go, which makes it more likely that their money will end up somewhere they wouldn’t choose – namely, the state. For this reason, it’s always prudent to have a strategy in place and to plan ahead for various outcomes.

Understanding Inheritance Law

While regulations differ a bit by state, the standard inheritance hierarchy looks something like this: surviving spouse, children, grandchildren. If there are none, or those relatives cannot be identified, assets can go to parents, grandparents, siblings, and nieces and nephews. In instances where no such relatives exist, assets are escheated back to the state. Essentially, in the absence of a next of kin, the escheat process allows the state will lay claim to your assets and utilize your money for the public good.

Choosing Alternative Heirs

Obviously, it’s not ideal to simply let the state decide the disposition of your hard-earned assets. So, you may want to consider choosing an alternative heir instead. Alternative heirs can be relatives, friends, or legally recognized non-profit organizations. Anyone can inherit your assets, so be thoughtful about who you designate as a beneficiary in the absence of obvious heirs. Of note: Some states will levy an inheritance tax, and it could be higher for a non-relative beneficiary.

If you choose a charitable organization to inherit your assets, you may also consider beginning your philanthropy while you’re still alive and able to witness your impact. If you’d like to go this route, you have several options open to you:

  • Charitable Remainder Trusts. With this irrevocable trust, you receive an immediate charitable deduction based on the present value of the cash or other property that you transfer. You also receive a reliable income stream from the trust, which could be for a set number of years or for the remainder of your life. Upon your death, the non-profit receives the remaining assets.
  • Donor-Advised Funds. Here, you make an irrevocable, tax-deductible contribution of cash, securities, or appreciated noncash assets. Then, you can invest the funds for future potential growth and recommend grants to qualified 501(c)(3) charities you’d like to support.
  • Private Foundations. This type of non-profit organization is often founded by a family or an individual. It begins with an initial tax-deductible gift, which will be managed by a board of directors or trustees. Sometimes, these trustees are paid for their efforts in controlling the disposition of your assets. With a private foundation, you may grant funds to qualified 501(c)(3) charities, as with a donor-advised fund, but you’re not limited to just qualified charities.

As you consider the above options, think through how much control and oversight you wish to have. All three charitable giving are suitable ways to plan your estate, so base your choice on personal preference, as well as guidance from your financial advisor. It may even be possible to combine several of the approaches described above in order to accomplish your estate planning goals. You should also work with a tax professional who has experience in charitable giving before you implement any plans. This will ensure you’re meeting your goals in the most tax-efficient manner possible.

SEE ALSO: The Time is NOW to Think About Estate Planning


Schedule a No-Obligation Discovery Call

Managing your wealth is a very personal subject, one we should discuss in a more personal setting.