If you’re expecting an inheritance when your parent dies, you could be in for a surprise. Many parents, particularly those who remarry, unintentionally disinherit adult children by neglecting crucial steps they must take to ensure heirs receive an intended inheritance.
So, if you miss out on your inheritance, who might receive it instead? And what can you do to prevent being left out in the cold when it comes to your deceased parent’s assets?
Find out seven ways an intended inheritance could end up in someone else’s bank account.
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1. A parent’s remarriage
In many states, certain assets pass directly to the deceased person’s spouse. If your parent remarried, even if he or she has a will stating that you or your siblings are to inherit assets, you could still be disinherited through non-probate assets.
Non-probate assets can include jointly owned property with another person or assets with a named beneficiary. Non-probate assets don’t pass through state probate court, which is the formal legal process recognizing the deceased’s will.
2. No will
If your parent didn’t file a will and the deceased’s assets exceed the state’s small estate limit, state law will dictate beneficiaries. The estate will have to pass through a state probate court to appoint an administrator who will administer the estate and distribute assets.
When there is no will, state laws of descent and distribution determine asset distribution, regardless of your parents ’ expressed wishes.
In many states, the new spouse may inherit most assets, later passing those assets to his or her own children rather than to you and your siblings.
3. No premarital agreement
Did your parent remarry without putting a premarital agreement in place? If so, your inheritance could be at risk. Failure to prepare a premarital agreement that sets out the rights of respective assets can have a “cascading negative effect,” says Kyle Krull, an estate planning attorney in Overland Park, Kansas.
Without a premarital agreement, your parent’s spouse by remarriage will be guaranteed a certain percent of his or her estate regardless of how it passes through probate, says Krull. The new spouse could also take half of the assets through separation or divorce.
4. Failure to update an estate plan
When a parent remarries, it’s time to update his or her estate plan to reflect combined families and changes. In addition to a new will, advance directives, and new durable powers of attorney for financial and health care, the updated estate plan should ensure that your parent’s inheritance wishes are carried out.
For example, the new estate plan can include a plan stating that if one spouse dies and the other remarries, the remarrying spouse must execute a premarital agreement that protects assets from the previous marriage and shields children from that marriage or a previous marriage from disinheritance.
5. Jointly owned property with a spouse
Generally, jointly held assets such as a home purchased with a spouse pass to the surviving spouse. Other assets that may pass directly to your deceased parent’s spouse include bank or investment accounts or merged assets.
For example, if your parent and his or her new spouse sell their homes and both buy a house in joint name with pooled money, “the entire home belongs 100% to the surviving spouse,” says Krull.
6. 401K retirement accounts
The surviving spouse, with some exceptions, is typically the beneficiary on 401K retirement accounts, which are governed by the Employee Retirement Security Act of 1974 (ERISA), even if someone else is named as the beneficiary, according to the U.S. Department of Labor.
Suppose your parent wants you or a sibling to be the primary beneficiary. In that case, the new spouse must sign a consent waiver (prior to your parent’s death) allowing another person to be the primary beneficiary.
An Individual Retirement Account (IRA) doesn’t fall under ERISA, so the new spouse won’t automatically receive money from an IRA unless he or she is a named beneficiary.
7. Unintended life insurance beneficiary
When a parent remarries but neglects to change the beneficiary from a deceased spouse to a new beneficiary on a life insurance policy, that oversight can lead to unintentional disinheritance.
That’s because when your parent dies, those insurance proceeds will become probate assets, potentially pitting you against your stepparent and his or her children for inherited funds.
