Inheritance laws by state govern much more than just who gets what. The portion of the law dedicated to inheritance invariably overlaps with systems of ownership, marriage, and taxation, to name just a few. Let us take it from the top.
The Three Systems
The history of the United States, short as it may be for a country, is varied and colorful. Each state has its own constitution and set of laws, and what counts in one state might not necessarily be the rule of law in a neighboring state. When it comes to ownership and inheritance, one of the key differences between the different states is their foundational legal system. The majority of US states have based their legal codes on English common law.
There are notable exceptions, however, especially in some of the country’s most populous states such as California and Texas. As former Spanish colonies, both states have laws that are based on the Spanish civil law system. Louisiana, as a former French colony, was founded on Napoleonic civil law. While much of the country has adopted uniform codes and altered their laws over time, one important dichotomy remains in matters of the estate: separate property (common law) states vs. community property states, and elective community property states. These are the three dominant systems for inheritance and property ownership in the US.
Common law basically holds that every person is entitled to their property, and the risks and benefits therein. Even married couples are held accountable according to what they own and earn separately, and while they can elect to do their taxes together or put both of their names on the deed of a home, spouses in common law states own things separately by default.
Community property laws hold that a married couple owns everything earned or acquired from the point of marriage onwards as joint property, with the exception of a few things, such as gifts and inheritances, or a mutual contract such as a prenuptial or postnuptial agreement.
This means that if you marry someone, become the breadwinner for the family, and finance the acquisition and mortgage payments for a home, that home still belongs to both you and your spouse as an even 50/50 split, and should one of you die, the other becomes the automatic full owner of the property, regardless of what it says on the deed. Community property states include Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.
The third major delineation includes elective community property states. In these states, spouses own property separately, but may elect to become automatic heirs upon signing a written agreement. Elective community property states include Alaska, Kentucky, and Tennessee, and are relatively new: Alaska adopted this system in 1998, but Tennessee has only had a similar system since 2010, and Kentucky since 2020.
Louisiana is unique among all the other states in the country in that it retains legitime laws that might otherwise only be found in Europe, and a few other parts of the world.
Legitime laws dictate a minimum inheritance for any legitimate heir; usually the surviving spouse and/or direct descendants, or the next of kin in the absence of a spouse or kids, regardless of the estate plan or the wishes of the decedent, with the exception of certain forms of disinheritance or disqualification from inheritance.
It should be noted that Louisiana has significantly altered its legitime laws two centuries, such that only “forced heirs” are entitled to a legitime portion. That includes heirs under the age of 24 at the time of the decedent’s death, and heirs who are permanently disabled or incapacitated according to Louisiana’s standards for guardianship.
Take Note of Intestate Succession
Intestate succession differences are some of the most relevant and important distinctions between the states. Intestate succession determines the order in which an estate is divided in the absence of a testamentary document (hence, “intestate”).
While the gist is usually the same – spouses and children inherit first, then parents and/or siblings, and other family members – the exact order and portions to which each potential heir is entitled can differ significantly from state to state.
If you do not plan on setting up an estate plan of your own, it is doubly important to be aware of how the state will handle your belongings and distribute them among the living.
Testamentary Document Requirements and Trust Rules
The most common estate planning document is the last will and testament – but there are state-specific considerations for setting one up. Certain states accept handwritten or holographic wills under certain conditions, while others absolutely do not.
Oral wills are almost never going to fly, but some states make special exceptions for certain circumstances. The validity of a will almost always requires witnesses and notarization, but the wording, language, and consequences of using the wrong template or base formatting may result in completely different outcomes from one state to the next.
The same goes for trusts, which must be established via a valid trust document, and funded through deeds and ownership documents that reflect the trust’s existence.
State-Specific Probate Considerations
The probate process exists in every state, but there are differences in the expected timeframes, costs, and management of probate processes from state to state. The probate process for a large estate in New York may be considerably longer and costlier than the process for an estate of the exact same size in Michigan. Furthermore, creditors may have more time to create a claim against an estate in one state versus another.
State Estate and Inheritance Taxes
Taxes are an important consideration in estate planning. The last thing you want is for your financial legacy to be significantly diminished by avoidable costs. Minimizing your tax liability in estate planning is not a form of tax evasion – it is a completely legal and highly encouraged form of tax avoidance, especially if your estate is on the larger side.
While there is a federal estate tax and estate tax exemption limit, some states levy an additional state estate tax, while others levy an inheritance tax on an inheritance of more than the exempted value. Some states levy both estate and inheritance taxes. As of 2023, twelve states levy state taxes on an estate, six states tax inheritance, and one state (Maryland) taxes both. Unlike the federal exemption limit and tax rate, state estate taxes tend to have a much lower exemption limit, but also a much, much lower tax rate.
Noting the differences in legal minutiae between the state inheritance laws of each state in the Union would be enough material to fill a course – but having a general overview of how inheritance laws are structured and differ within archetypal systems used throughout the country can give you a better understanding of how property is owned and distributed after death, and why an estate plan (especially one that is relevant to your needs and circumstances) can be important.