By Craig Watson
Jane Doe, age 54, was tired. “I’m going to bed early tonight,” she told her husband. They had been happily married for 14 years. John was sitting in his recliner watching television. It was not unusual for him to fall asleep watching TV. Jane got up the next morning and quietly got ready for work. As she was walking past John, she noticed something did not look right. She walked closer and tried to wake him. John had died in his sleep without warning. He had been the picture of health; he worked outside, was not overweight, never smoked, and never went to the doctor. “What a nightmare,” you say; and, it is. You will really think ‘nightmare’ when you hear about his estate.
John did not have a Will or any life insurance. John and Jane did not have a prenuptial or postnuptial agreement. Self-employed, he had a lot of debt, including equipment loans, car loans and credit card balances. Jane knew virtually nothing about John’s business. John owned their house before they got married so the house was his separate property. Most of his net worth was tied up in the house, which was worth $350,000. The remaining mortgage balance was $150,000. He had a savings account of approximately $18,000. John’s first wife remarried a wealthy man who adored John’s teenage daughter so she had everything she needed. They live on the West Coast, so John might have seen his daughter once per year for the last several years. John’s daughter decided to hire her own attorney to represent her interests in John’s estate.
Because John died without a Will, the Texas heirship statutes control who inherits his property. John’s personal property (cash, personal effects, brokerage accounts, equipment, cars, etc.) will be split equally by Jane and John’s daughter. However, there is no equity in his equipment because the loans are about equal to the value of the equipment securing the loans. The cash will quickly be eaten up by the funeral, appraisal fees, attorney fees, monthly debt payments, property taxes, insurance, and other expenses. Much to Jane’s surprise, she learned that because John died without a Will, his daughter’s attorney can ask for John’s estate to pay his attorney fees and the judge might allow the request.
Of course, the estate’s attorney will also be paid out of the estate. Legal fees are much higher for an estate without a well-drafted Will because the attorney must do a lot more work. Property taxes are due on the house. Within a month of John’s death, the equipment loans, car payments, house payment and credit cards are all one month overdue, meaning two payments are due. Probating an estate without a Will takes longer because more court hearings are required. So, all of the loans will soon be three payments behind, resulting in unpleasant calls from collection agencies. John still owes child support to his first wife. Before any inheritance can be distributed to Jane or John’s daughter, the debts and expenses must be paid. Jane finds that after expenses, she will inherit nothing from John’s personal property.
Because the house was John’s separate property, John’s daughter will inherit two-thirds of the house. Jane will only inherit the right to live in the house but the daughter inherits the entire house as soon as Jane dies. However, in order to live in the house, someone has to pay the monthly mortgage of $1,200. Jane only earns $22,000 per year at her job. The property taxes and homeowner’s insurance are $8,000 per year. Living in the house is not an option for Jane because she simply cannot afford it. Jane is devastated to learn that she will inherit very little from John’s real property. So when all the dust settles, John’s pampered daughter inherits most of his estate.
In conclusion, if you do not plan for the disposition of your estate, Texas law provides an inflexible and often surprising “estate plan.” This is especially true in second marriage situations. Your very own well-drafted estate plan can protect your loved ones from extra expenses, avoidable delays, preventable disputes and devastating surprises––much like homeowner’s insurance protects you in case your house burns down. Hopefully, you will never need your homeowner’s insurance. Unfortunately, everyone will need an estate plan someday. Because John never got around to it, Jane was left with virtually nothing, a result that John probably never intended. Don’t let such a depressing experience happen to you or your loved ones. Make sure your family is prepared and secure.