Estate Planning for Married Couples: In this blog, we will explore the intricacies of estate planning specifically designed for married couples. With a focus on protecting assets, securing financial stability, and providing for loved ones, our comprehensive guide will cover key aspects such as wills, trusts, tax considerations, and legacy preservation.
By offering valuable insights and practical guidance, we aim to empower you to make informed decisions that will create a tailored estate plan. Join us as we navigate the complexities of estate planning, ensuring your family’s well-being and preserving your enduring legacy.
Documents known as estate plans outline your wishes for your final years and how you want to distribute your assets after your death.
A well-rounded estate plan includes four important documents:
- A Last Will & Testament to specify your wishes regarding the distribution of your assets after your death and to select an executor who will administer your estate.
- A Health Care Directive guides your family members and healthcare professionals about your treatment preferences if you are unable to communicate. You can also appoint someone to act on your behalf.
- A Durable Power of Attorney allows you to appoint a representative to manage your finances, real estate, or business affairs if you are unable to. It gives the person the power to act in your place.
- An End of Life Plan is a formal document that outlines your wishes for your final days, including arrangements for your obituary or epitaph, your remains, your funeral, and more.
Why Estate Planning Is Important
Estate planning has many benefits, from reducing tax burdens to controlling your assets. Here are a few of the most important reasons why you should plan your estate:
Documenting your wishes in advance can help you:
- Control who inherits your assets at death.
- Ensure that your family is financially secure.
- Specify guardianship arrangements for your children or pets.
- Indicate your personal treatment preferences.
- Provide thoughtful instructions for your absence.
- Allocate your estate to save your family time, money, and confusion.
- Reduce estate taxes or legal fees.
- Streamline your estate planning to pass assets on to beneficiaries or your spouse.
- Select a trusted person to manage your estate.
- Ease the stress of funeral planning.
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Estate Planning and Marriage
After you marry, it becomes more important to get your estate to provide for your spouse or children financially in the event of your death.
Marriage changes your legal and financial status in many ways. As a married couple, you can file jointly with your partner and share property and income. Moreover, the government recognizes you as married, which has an impact on the distribution of your assets upon death.
Understanding how separate property and shared property work is essential in comprehending the perception of your property as a couple.
Separate and Shared (Marital) Property
Separate Property is a property that you own individually. You do not have any ownership rights.
Separate property is:
- A prenuptial agreement that specifies separate property or assets acquired before marriage.
- Gifts/Inheritance given by one spouse to the other before or after marriage.
- Personal Injury Proceeds.
Marital Property is a property that you and your spouse share. You and your spouse jointly own it. It includes:
- Purchase of property using the money earned by either spouse during marriage.
- Earned income or assets appreciated due to marriage efforts.
- Wedding gifts are items that both spouses receive during their marriage.
OR
- Separate property which has been combined with marital assets. For example, depositing an inheritance in a joint account or adding the spouse’s name on a deed of property acquired before marriage.
Your property will be classified differently after you marry. You can separate assets from marital property by creating a Prenuptial Contract or putting them in a trust.
Community Property and Equitable Distribution States
The distribution of your property after you die is also affected by where you live. In the United States, two different types of states determine how property is distributed between spouses following divorce or death.
Community Property States
In the following states, community ownership laws apply. This means that each spouse has equal (50/50) shares of the marital property.
- Louisiana
- Arizona
- California
- Texas
- Washington
- Idaho
- Nevada
- New Mexico
- Wisconsin
- Alaska (if both spouses consent to make assets community property)
The surviving spouse inherits the marital assets of their deceased spouse, while the rest of their separate property is divided by their Will.
Community Property States and Debt
In states with community property, both spouses share the debt. In these states, if the value of marital assets exceeds the debts of a marriage, the property must be sold to pay the deceased spouse’s debts.
Typically, debts incurred before marriage are kept separate regardless of the state’s property distribution laws.
Equitable Distribution States
In the remaining states, equitable distribution is used (also known as common law), which takes into consideration several factors in dividing assets between spouses in case of divorce or death. These factors include but are not limited to:
- Each spouse’s income
- Age and health of the surviving spouse
- Earning potential of spouse
- Contributions of spouses in terms of financial contributions to the marriage or their other spouse
- The length of the marriage
- Standard of living
- The amount of property that contributed to the marriage
- Needs of children with dependent parents
The court fairly divides the marital property for the surviving spouse, based on a combination of the factors mentioned above. The court has the discretion to divide the property more or less than half, depending on its decision.
Equal Distribution States and Debt
In states with equitable distribution rules, debts and separate property are treated the same. Individual debts, which are the sole responsibility of a spouse, are kept separate. However, debts accrued due to marital needs, such as paying school fees for the children or mortgage payments on a home, are shared by both partners.
Estate Planning With a Spouse
Your estate plan can be tailored to your needs once you have a clear understanding of how property is handled in a married relationship and the laws of the state in which you reside. Therefore, it is recommended that you create your estate plan while you are married.
It’s important to remain involved in each other’s plans and have open discussions. You can discuss your wishes for the end of your life, your plans for your estate, as well as your individual and shared financial goals. By doing so, you can ensure that both you and your spouse are actively engaged in the estate planning process.
Decisions to make together:
- Who will guard your minor children, pets, and other possessions?
- You can give gifts to specific people.
- You can avoid probate by jointly owning property and transferring assets to each other after death.
Child Guardianship
It is important that both you and your spouse name guardians for any minor children you have. If you don’t have the will to name guardians for your children, the courts will decide who will take care of them.
The surviving parent will have custody if one of you dies. However, if both of you die simultaneously, it is essential to appoint a guardian.
To prevent a court from deciding to separate siblings, most parents name a guardian in their Last Will.
You may also want to choose more than one person to be the guardian in case your first choice is unable to fulfill this role. Having a backup in place is crucial.
Before choosing a guardian, it is advisable to discuss the following issues with your spouse:
- Who can provide for our children financially, emotionally, and physically?
Ask yourself the following questions after creating a list.
- Does this person have a good reputation? Do they have the energy to dedicate to this task?
- Can we rely on this person to raise and educate our children? Are their values and beliefs similar to ours?
- Is this person in a good relationship with our kids? Do our children feel at ease living with them?
- Does this person already have children? What role would our children play in the equation?
After you and your partner have chosen the best person for this role, it is important to inform them about it. Having an open and honest discussion with the person who will be responsible for your dependents will provide you with peace of mind.
If you wish, you can include a letter with your Will outlining any information, requests, or feelings you have regarding your child’s upbringing. Including a letter in your, Will allows you to express your wishes, provide important information, or share your feelings regarding your child’s care.
Pet Caretaker
You and your spouse might also want to include your pet in your estate plan. You can name a caregiver and/or set aside money to provide for the maintenance and care of your pet.
Marital Property
Your marital assets are the property that you and your spouse have accumulated as a couple. It may include:
- Joint bank accounts
- Real estate (e.g., marital home)
- Vehicle(s)
- If you’re a co-owner, your business assets are protected.
- Earnings during marriage
- Purchase of goods with money from a joint account
- Gifts for both of you
According to the laws of your state, if you both die before each other, the deceased spouse’s share of the marital estate is given to the survivor.
It is a good idea to discuss with your spouse what will happen to the assets of the marriage if you both die simultaneously. This type of planning can be especially important for marital assets, such as a business.
Create a list of your assets and decide who you want to give them to. This will help ensure that your wishes are carried out and that your assets are distributed as you desire.
You may also want to leave an inheritance to:
- Grandchildren
- Siblings
- Friendships are a close group of friends
- Parents and inlaws
- Extended family (e.g. cousins)
- You are involved in what organizations, clubs, or charities?
- Partners or colleagues in the business
You and your spouse can decide who you want to be the beneficiaries of your assets. You may also want to consider giving some of the assets you jointly own to people you love.
By determining “who gets what” and thoroughly assessing your assets, you can ensure that both you and your spouse are actively involved in making these decisions in the best interest of your family.
Separate Assets
Even if the amount of property is not significant, most couples have their separate property. The answer depends on how long you’ve been married and the decisions you made regarding your assets before getting married.
As long as you have not commingled your separate assets with your marital property, you have the flexibility to distribute these items to anyone you choose. It is advisable to mention this separate property in your Will and designate its beneficiary accordingly.
Transferring Property Outside Probate
Certain assets owned jointly with a spouse can be transferred outside the probate court to the spouse who survives.
Transferring property outside probate has many advantages.
- Simplified estate distribution
- Cost-effectiveness
- Transferring property directly to a co-owner ensures that the property is in the right hands
Three types of ownership exist tenancy-in-common (which is usually the default option for unmarried property owners), joint tenancy, and tenancy by the entirety. These are forms of shared ownership that are typically used by married couples.
If you and your spouse are planning to transfer property to each other after the death of one of you, it is important to understand how your property is held and the specific type of ownership you have.
Joint Tenancy
Joint tenancy occurs when both owners have equal ownership of the property. It is common between married couples and business partners. Joint tenancy gives rise to what is known as a “right of survivorship,” meaning that when one owner dies, their interest in the property automatically transfers to the surviving owners.
If both spouses are named on the title, real estate can be owned jointly. After the death of one spouse, the interest in the property is automatically transferred to the other spouse. The surviving spouse retains the interest, and living beneficiaries cannot claim it.
State laws vary on how to establish joint tenancy. In some states, owners are required to clearly state on the deed of the property or in the Will that it is jointly held. Some states require the use of a Survivance Deed to specify joint tenancy.
Most states require that the ownership be shared in terms of interest, time, and title, among other requirements.
If you need assistance in establishing joint tenancy or want to know if your state has any special requirements for joint ownership, it is advisable to consult a local attorney.
Rent by the Entirety
About half of the states recognize tenancy by the entirety. This form of ownership is only available to married couples. The property is owned jointly by both spouses as a marital entity, and any changes to their interest in the property require the consent of both spouses.
Like joint tenancy, tenancy by the entirety includes the rights of survivorship. If one spouse passes away, the property is transferred directly to the surviving spouse outside of probate.
Health Care Planning
Discussing your choices with your partner is another important part of your estate plan. The same should be done by them.
It is important to plan for your healthcare needs.
- In the first place, if you become incapacitated or sick, you may not be able to provide consent for certain treatments. By documenting your wishes in a Health Care Directive, you provide professionals with guidance to follow in the event of an emergency.
- Having a written record of your preferences will prevent loved ones from having to make difficult decisions about your health care on your behalf.
If you’re married, your spouse can legally make decisions on your behalf. However, if you prefer someone else to act as your Medical Power of Attorney and make decisions for you, you can designate them accordingly. It is important to have open and clear communication with both your spouse and your chosen healthcare representative about your decision and preferences.
You may wish to include the following in your directive:
- What is your ideal quality of life?
- Your thoughts on artificial life support, artificially administered water and food, and comfort care in the event of a persistent vegetative condition, coma, or terminal illness.
- What are your opinions regarding surgery, blood transfusion, or organ donation?
Your Health Care Directive can include as many details as you like about your medical preferences. However, it’s important to note that some states have legal limitations on what health professionals are allowed to do based on your instructions. It is advisable to familiarize yourself with the specific laws and regulations in your state regarding the scope of instructions that can be included in a Health Care Directive.
Document Storage
Store your important documents in a secure place, such as a security deposit box or a safe. Alternatively, you can choose to store them with an attorney. It is crucial to communicate the location of these documents to each other, as well as to your designated executors or healthcare agents. By sharing this information, you ensure that the relevant individuals can easily access and carry out your wishes when the time comes.
Updating Your Estate Plans
After you have created your estate plan, it is important to regularly update it following any major life changes to ensure that your wishes are always accurately reflected. If you have children and want to allocate funds for their inheritance, both you and your spouse may need to review your respective Wills. By reviewing and updating your estate plan as needed, you can ensure that it remains current and aligned with your evolving circumstances and intentions.
You should update your will after any of the following events:
- Adoption or birth of a child
- Death of a guardian or beneficiary
- Marriage, separation, or divorce
- Relocation
- Birth of a Grandchild
- If your executor is ill or dies
- You acquire significant assets or incur significant debts
Supporting Each Other’s Estate Plans
You and your spouse may have separate estate planning processes, but it is crucial to remain actively involved in each other’s final preparations. By working together, you both can experience greater peace of mind knowing that your estates are in order. It is important to have clear and open communication about your estate wishes as partners. This becomes particularly significant if one of you were to pass away and the other person needs to handle your affairs.
By discussing and collaborating on your estate plans, you can support each other in achieving your respective goals. Working together in this process can make it easier and less stressful, as you both navigate the planning journey as a team.
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