Most of us have heard stories about people receiving a surprise inheritance from a distant relative. How does such a thing happen? Well, it all starts in probate.
Probate proceedings are designed to settle claims relating to a deceased person’s estate. These proceedings, usually directed by a judge or magistrate, take place in the probate court (Surrogate’s Court in New York) responsible for the area where the decedent held permanent residency. When a probate case is opened, the court officer authorizes a personal representative (PR) to manage the distribution of the estate’s assets. The court supervises the process according to state and local statutes, and must approve the final disposition of the estate, making sure that all income and disbursements are lawful, appropriate and documented.
If the decedent specified his/her intentions in a will, the distribution of assets is likely to be easier, but not always. People die, circumstances change, and it’s possible that the PR will need to modify specific bequests (property disposed of by a will) within the limits set out in the state’s statutes. When a person dies without a will (intestate), the PR simply works through the estate as directed by law. In both situations, it’s possible that some assets remain undistributed.
At this point, the hunt for extended family expands. When found, these individuals are called “laughing heirs,” because they are so distantly related to the decedent that they feel no obligation to mourn. Instead, they take their windfall and “laugh all the way to the bank.” The inheritance often comes from a long-lost relative who died without a will. Less commonly, the deceased relative named beneficiaries in a will, but they either died before the decedent or disclaimed (rejected) the bequest. Depending on the inheritance laws applied to the probate estate, an unknown sixth cousin could inherit some or all of the property, or, if nobody within a specific limit of descent is found, the assets go to the state (escheat).
“Laughing heir statutes,” the informal name for relevant probate rules, almost sound like laws to protect the distant relatives’ interests. Instead, these statutes define a limit, after which the undistributed assets escheat. Under section 2-103 of the Uniform Probate Code, currently enacted in 17 states and the US Virgin Islands, the limit of the right to inherit only includes grandparents, aunts and uncles, and first cousins. However, that means over half of the states in the US do not have laws restricting the search process. North Carolina, for example, may allow unlimited research into distant cousins, potentially opening the door to more laughing heirs.
So, how do we prevent these situations? The first step is to establish a comprehensive estate plan. Avoid conflicting instructions within the estate plan. For example, a transfer on death deed supersedes a will, so make sure to identify the same beneficiary in both documents. Identify backup beneficiaries in case the first choice is unable or unwilling to accept the property. Update the plan as circumstances change. When in doubt, consult an attorney or other appropriate professional to answer questions, and to ensure lawful language, form, and content.