Planning Your Legacy

Inheritance Law: Your Family’s Right to Inherit Versus Creditor Rights

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There's a lot to be said for avoiding the time and expense of probate, the term for the legal process of sorting through the assets (estate) of a deceased person. However, even if probate is not required to settle an estate, there are certain family and creditor rights that need to be legally honored no matter what. That’s why it’s good to understand inheritance law.

Your family's right to inherit

How does inheritance work? Family members, in some circumstances, have a right to claim some of the property you leave at your death, regardless of whether there is a will or the estate goes through probate. This, of course, is no problem for most people; most of us want very much to pass on to our spouses and children whatever wealth we've accumulated.

Spousal rights

Is your spouse entitled to your inheritance? That depends, as spouses' rights vary from state to state.

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), the general rule is that spouses have equal ownership rights to property they acquired together during the marriage. Spouses are free to leave their separate property, as well as their half of the community property, to anyone they wish.

In most other states, a surviving spouse who doesn't receive at least one-third to one-half of the deceased spouse's property (through a will, living trust or other method) is entitled to insist upon that much. The exact share depends on state law.

Children's rights

You don't have to leave your children or stepchildren anything. If you don't want to leave any property to one or more of your children — perhaps they have plenty of money, or you've already given them their inheritances — just make a will and mention each child in it.

To avoid any later misunderstandings or hurt feelings, explain your actions to your children, either in your will or — better yet — now. If any children appear to have been accidentally overlooked — which typically happens when children are born after the parent's will is signed — they may be entitled to a share (the size is determined by state law) of the deceased parent's assets.

Grandchildren's rights

What about grandchildren inheritance rights? Grandchildren are not entitled to inherit from their grandparents unless their parent has died. In this case, the grandchildren essentially take the place of the deceased child and are entitled to whatever he or she would have been legally entitled to, if anything.

Creditor rights

Most people don't need to worry that after their death, creditors will line up to collect large debts from the estate if their property doesn’t go through probate. In most situations, the surviving relatives simply pay the valid debts, such as monthly bills, taxes, and medical and funeral expenses.

Yet avoiding probate doesn't let you off the hook from legal obligations to your creditors — such as a credit card company. If you don't leave enough to pay your debts and taxes, any assets that passed outside of probate may be subject to the claims of creditors after your death.

If there is any probate proceeding, your executor (the person named in your will to handle your affairs after your death) can demand that whoever inherited the property turn over some or all of it so that creditors can be paid. Creditors, however, have only a set amount of time —about three to six months, in most states — to submit formal claims to your executor. A creditor who is properly notified of the probate court proceeding can’t file a claim after the deadline passes.

On the other hand, when property isn't probated, creditors' claims aren't cut off so quickly. In theory, at least, a creditor could track down the property and sue the new owner to collect the debt a year or two later.

As a practical matter, however, avoiding probate may actually provide more protection from creditors. When property is distributed without probate, there is no legal requirement (as there is in probate) that creditors be notified in writing. They may not know of the death for years. They may not know where the property went and, especially if the debt is small, it may not be worth their while to track down the new owners and try to collect.

If you’re unsure of what to do or what estate planning documents are in place, seek the assistance of an experienced attorney who specializes in probate and trust law.

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