by: Joshua Dunegan
When we die without a Will, we are deemed to have died “intestate” under the Texas Estates Code. This means that state-provided statutes determine how our assets are divided and who receives our property. This default statutory scheme can roughly approximate most people’s wishes in the case of a “traditional” family composition, but they rarely match our intended outcome when blended families are involved.
Texas’ intestacy rules distinguish between an individual’s separate property and their community property. Property owned by a married individual is presumed to be community property. Separate property is property that can be proven as owned prior to marriage or received by gift or inheritance.
The community property presumption, in combination with the default rules, often leads to undesired outcomes when one spouse passes without a Will. Below is a brief description of the default rules for a person who is part of a blended family when they pass, followed by a case study of how this can look in real life.
Under the Texas Estates Code, if a married person dies without a Will and has any children who are not the child of the surviving spouse, then the surviving spouse does not receive any portion of the decedent’s community property.
For separate property, the results are less catastrophic. The Estates Code states that the surviving spouse takes a 1/3 interest in the non-real estate assets. For real estate, the surviving spouse receives a 1/3 interest life estate interest, meaning that the surviving spouse cannot practically receive a financial benefit from selling or transferring such interest.
To get a sense of the practical impact of the intestacy statutes, let’s look at a client we’ve recently helped. We’ll refer to them as “John and Jane Smith.”
John and Jane were married for 35 years. John and Jane lived in the same house their entire marriage, which John bought before their marriage. During their marriage, they built a real estate portfolio of rent-producing properties.
John and Jane had a son, “Barry,” soon after their marriage, and John also had a son, “Terry,” from a brief prior marriage. Unfortunately, Terry grew distant from his father and stepmother, and in the past 5-10 years, he began to cut them out of his life.
This past year, John began having medical problems, which prompted him and Jane to begin talking about estate planning, since neither one of them had a Will. John and Jane agreed that they hoped to leave everything to each other, and then 75% to Terry and 25% to Barry after they both had passed. Tragically, John passed away soon after their conversations and never had a Will drafted.
When we look at the statutory default provisions, John and Jane’s marital home is John’s separate property, and their real estate investments are community property. This means Jane inherits only a 1/3 life estate interest in her marital home and is left owning ½ of the real estate investments. Terry and Barry each own a 1/3 interest in Jane’s primary residence and a ¼ interest in the real estate portfolio.
Unless Terry and Barry both want to gift property back to Jane (which could have significant tax ramifications) or Jane wishes to buy out the boys, Jane will be left with no usable equity in her home and stuck managing the investments alongside the two boys. This leaves the three of them stuck in a co-ownership situation that John had no intention of creating for his loved ones upon his passing.
How could this situation have been avoided? Through Will or Revocable Trust-based Estate Planning, John and Jane could have ensured that their spouse would have been fully protected and financially supported on the first to pass. They would then have had the ability to distribute their remaining assets in a manner that fit their family dynamics upon the second of them to pass.
If you have questions or want to talk to an attorney about ensuring that you avoid the default intestacy rules, please contact us, and our attorneys would be happy to help discuss your situation and help ensure that your wishes will be carried out.
Romano & Sumner, PLLC
