Intestacy Laws

Intestacy Laws are the government's default Will for you if you die without a valid one. When a person passes away 'intestate' (the legal term for dying without a will), these state- or country-specific rules kick in to dictate exactly how their Estate—all their money, investments, and property—is divided and distributed. Think of it as a pre-written script that your local government follows to pass on your Assets. This script rarely, if ever, matches what you would have wanted. It follows a rigid, impersonal hierarchy of relatives, often leading to unintended consequences, family disputes, and significant delays in transferring the wealth you worked so hard to build. For any investor, understanding these laws isn't about becoming a legal expert; it's about recognizing the enormous financial risk of not having your own plan in place.

Imagine spending decades diligently researching companies, building a robust Portfolio, and compounding your wealth, only to have a government bureaucrat decide who gets it all in the end. That's what happens when intestacy laws take over. Your carefully constructed financial legacy is subjected to a one-size-fits-all legal formula. These laws don't know that you wanted to leave a special gift to a lifelong friend, support a specific charity, or ensure your business partner could buy out your shares. Instead, they just follow the bloodline, which can lead to disastrous outcomes. For a value investor who prizes prudence and control, dying intestate is the ultimate unforced error—it's handing over the final, and most important, Capital allocation decision of your life to a complete stranger.

While the exact details vary by jurisdiction (for example, between California and New York, or between the US and Germany), intestacy laws follow a surprisingly similar pattern of distribution often called a 'waterfall.' The estate flows to the closest relatives first, and if there are none at that level, it cascades down to the next.

The law identifies legal Heirs in a strict order of priority. Here is a common, simplified sequence:

1. 1. Surviving Spouse: Often inherits the entire estate, but this can be complicated. In many places, if the deceased also had children (especially from a previous relationship), the spouse may have to share the estate with them.
2. 2. Children: If there is no surviving spouse, the children typically inherit everything, divided equally.
3. 3. Parents of the Deceased: If there's no spouse or children, your parents are next in line.
4. 4. Siblings: If no spouse, children, or parents are alive, your siblings (and sometimes their children, i.e., your nieces and nephews) will inherit.
5. 5. Escheat: If the state can't find a single living relative through an extensive search, your entire estate goes to the government. This process is called Escheat. It’s the ultimate wealth tax!

Thankfully, not all assets are subject to the rigid grip of intestacy. Certain types of accounts and property pass directly to a chosen person, bypassing the lengthy and public Probate court process entirely. This is because they have a designated Beneficiary or a specific legal structure. Key examples include:

• Assets held in a Trust. This is a primary tool for avoiding probate.
• Life insurance policies with a named beneficiary.
• Retirement accounts like a 401(k), IRA, or a pension plan with a named beneficiary.
• Bank or brokerage accounts designated as 'Payable on Death' (POD) or 'Transfer on Death' (TOD).
• Property owned as Joint tenancy with right of survivorship, which automatically passes to the surviving owner(s).

The lesson here is crystal clear: Control your own legacy. Relying on intestacy laws is the financial equivalent of buying a stock without doing any research—it's a gamble, and the odds are not in your favor. The single most important step you can take is to create a will. It is the foundational document of a sound Estate plan. Drafting a will allows you to direct your assets with the same precision you use to manage your portfolio. You decide who gets what, when, and how. It minimizes family conflict, reduces legal costs, and ensures the value you've spent a lifetime creating is preserved and passed on according to your values and wishes, not the government's. For an investor, a well-crafted estate plan isn't a morbid task; it's the final, and perhaps most meaningful, expression of a disciplined investment philosophy.