{Read in 4 Minutes} As a Trusts and Estates attorney, I am always representing people in dealing with the Estates of a deceased person. Whether I’m representing an Executor or an Administrator, all Estate fiduciaries need to understand which assets pass through the Estate and which pass automatically to named beneficiaries. Regardless of whether one dies with a Will or without, there are certain assets that automatically vest in the surviving spouse or the children of the deceased. This is known as family exempt property.
What is family exempt property? Well, in general, family exempt property includes household furnishings; family books and photographs; pets; heirlooms; etc. — up to $25,000. There are also some big-ticket items that fall under this heading such as $25,000 in cash outright or a car up to $25,000 in value. As you see, this can make a big difference.
Why is this important? Well, really, it’s important for the following three reasons:
- Family Rights
The family has rights to these funds, regardless of what the Will says. Assuming that there is no prenuptial agreement, the surviving spouse will be entitled to certain assets that never enter the hands of the estate’s fiduciary. This means that, if the fiduciary has collected them, they are required to give them out to the family, even if the Will provides otherwise. It’s important to be aware of these issues.
- Inheritance by Minors
The deceased’s children have some rights to family exempt property if there is no surviving spouse. For example, if an unmarried person dies in New York State leaving no spouse but children who are less than 21 years of age at the time of their death, the children will inherit the family exempt property.
This also means, as a practical effect, that we could have a situation where a very young beneficiary comes into some money (or other valuable assets) — whether they are ready for it or not. If the beneficiary is under 18, that would require the appointment of a guardian to hold the funds until their 18th birthday. If they are between ages 18 and 21, they are an adult in the eyes of New York law, so they will inherit these assets and funds (up to $25,000 in cash), whether they are ready for it or not. I don’t know about you, but if I inherited $25,000 when I was 18, 19, or 20, I probably would not have spent it very wisely (although it would’ve been a heck of a lot of fun!). While most parents choose to leave money in Trusts for very young beneficiaries, parents need to consider that their children could potentially have this right and could receive some funds outside of the context of a formal trust until a later age.
- Creditors’ Rights
If the deceased left some debts, the creditors may have certain rights. However, the rights of family members to the exempt property are almost always superior to the rights of creditors. That means if the deceased dies with $30,000 in cash and $40,000 in credit card bills, the surviving spouse (or the children) might be entitled to that first $25,000 in cash as exempt property, leaving only $5,000 for the credit card companies. This can be very important for the surviving family members where an Estate is potentially insolvent.
People need to consider this when writing their Wills, and it’s also important for Executors or Administrators to take this into account when dealing with creditors’ claims and accounting to the ultimate beneficiaries of the Estate.
For more information on this topic, please contact me.