’Til Death Do Us Part

Its very common for clients to come into my office and tell me they want to leave everything to their spouse.

That sounds simple, right? Just give it all to my spouse. It's one of the most straightforward ways to leave your property behind.

And, yes, there are benefits to doing that. One of those benefits is a tax benefit. Currently under the tax law, you can leave as much as you want to your spouse without any tax implications – no gift tax or estate tax (you may have income tax implications but you will have this no matter what you do for any income that’s created off property).

Let’s dive deeper

Although this strategy is the most straightforward, there are a few complications that I urge all of my clients to take into account if this is what they want to do. The first thing I tell them is to think about expectations. What are the expectations of the surviving spouse? Let’s take a look at some different scenarios that I like to walk through with each client.

1. Do you have children?

If you have children, what are the expectations of the surviving spouse once they also pass away? What do you want to happen to your estate?

Do you want to ensure that your property goes to your children once the surviving spouse dies?
Or, do you want the surviving spouse to have total and complete control to decide when the time comes?

Keep in mind that total and complete control means that the spouse can do anything with that money – donate that money to charity, give it all to their favorite child, etc. It’s their money so they have every right to distribute it how they see fit.

When I have this conversation with my clients, many couples will say “no, no, we want to divide it equally amongst our kids and I completely trust my spouse to do that when the time comes!”

In general, they are probably right and life will turn out this way for them.

However, this is not a guarantee.

You can’t see into the future and what situations could come up. Maybe there is a falling out with one of your kids. Maybe in your spouse's grief, they will be taken advantage of by someone. Maybe, they just completely changed their mind with how things should be managed (and they have every right to do so!)

There are so many unforseen situations that could come up.

2. Do you have minor children?

When there are minor children involved, the question becomes whether or not you want to restrict the ability of the surviving spouse to use that money…

For themselves first?
For the dependents first?
Equally?

This type of restriction can be incorporated into a trust so that when the time comes, the decisions are made jointly, as a couple, and are less likely to be modified after the death of the first spouse.

3. Is remarriage a possibility?

This can be an uncomfortable situation to talk through! But, it's an important one.

Here are a few things I liked to talk through with my clients when their first thought is to leave everything to their spouse, with no restrictions, and there is a potential possibility of remarriage.

If the surviving spouse has unrestricted access to the funds, their "new" spouse may also have access to those funds. Maybe this isn’t a big deal, but maybe that matters to some people.
And that’s not all. What if the surviving spouse and the “new” spouse now get a divorce? The “new” spouse may have a right to whatever the surviving spouse has – including everything that was received from the original spouse.
This would also occur if the surviving spouse passes away. The “new” spouse could receive something from the surviving spouse as an inheritance.

There are various ways to reduce this potential risk with estate planning so that the “new” spouse does not have access to those funds. But, if you don’t have these options put into place – there is no protection or guarantee.

Sum It Up

Trusts are very flexible and can be designed in a variety of ways to ensure that your ultimate goal is met. However, if you do not have these uncomfortable conversations (such as questions about determining the surviving spouse's expectations) your legal documents may be limited in managing the risks associated with potential issues.

And, that is the goal of estate planning documents, right? To manage risk associated with future events.

If your goal is to protect your surviving spouse and provide them with as much flexibility as possible, we will want to look at ways to allow the spouse to receive as much as possible while also considering any restrictions to help protect your end goals.

In the end, this may not matter to you. The choice to trust the surviving spouse makes for an easier, more simplified plan. However this simplicity comes with a slight risk.

It is not up to an attorney to decide what is important to you!

It is an attorney’s job to educate their clients that simplicity and risk are two competing components when it comes to estate planning.

I hope you found this informative! If you did, if you found it interesting or if you learned something, I'd really appreciate it if you liked or subscribed to the channel and shared this with anyone else who may also benefit from this information!

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