Attention Wealth Managers: Be Careful of the "All Outright to Spouse" Estate Plan

One of the decisions that your married investment clients make is how to leave their estate to their spouse. This decision is often over-looked because married couples often don't like to talk about the possibility that a surviving spouse might remarry. Or perhaps the couple does not want to talk about how their spouse might be restricted from using the assets of the first spouse to die. But when someone guides them through a meaningful conversation about how to leave their estates to each other, and then to the heirs after both spouses die, the couple usually has a great deal of peace of mind after the conversation. Here are a few of the estate planning legal issues that pop up when married couples have an estate planning legal program that leaves everything to the surviving spouse.

Outright to Surviving Spouse

Generally, a married person can set up their estate planning legal program so that when one spouse dies, all of the assets that either spouse owned are ultimately owned and controlled by the surviving spouse. Typical examples of this include:

  1. The "I Love You" Will where each spouse leaves everything they own to the surviving spouse.
  2. The revocable living trust which remains fully revocable by the surviving spouse after the death of the first spouse.
  3. Each spouse names their spouse as the designated beneficiary on their life insurance, annuity contracts, IRAs, and other retirement accounts.

Many of your wealth management clients will like this approach because it seems simple. After the death of the first spouse, neither the children, the grandchildren, or indirectly, the spouses of the children and grandchildren, get involved. It's particularly simple when all of the assets are fully accessible by the surviving spouse without having to go through probate. The surviving spouse is free to spend the money as he or she sees fit and sell the house or other assets without having any accountability to the children or future heirs.

Some of your wealth management clients, however, will consider the structure of their estate planning legal program where everything is owned outright by the surviving spouse to be inappropriate. Some married people want some protections in place for the children. Some married people fear that if all is left to their surviving spouse, and then the surviving spouse:

  • remarries and leaves their estate to their new spouse;
  • gets irritated by one or more of the children and excludes them from the estate; or
  • gets adversely influenced in the surviving spouse's later years;

If any of the following three occur, then the heirs or children of the first spouse to die may wind up with nothing when the surviving spouse dies. There is even greater potential for problems in blended family situations when each spouse ahs children from a previous marriage or relationship.

Example: Husband and Wife each have two children from prior marriages. Husband dies leaving his estate to Wife. After Husband dies, Wife amends her estate planning legal documents to leave her estate to Wife's two children when Wife dies, Husband's two children never get anything.

If you are a wealth manager working with married couples, know that every single one of them is thinking about what their spouse will do with their estate after the first spouse dies. You can tactfully and professionally have the right kind of conversation with them that starts a meaningful deliberation about what they expect in the future. This will likely increase your value to them and increase your referrals.

Our legal work that we do counseling married couples includes having these necessary in-depth and meaningful conversations with clients about what happens when the first spouse dies. If your clients could benefit from that, give us a call and let's schedule a time when we can all sit down and have the kind of discussion that your clients have never had before, but will be glad they did, and they will appreciate your starting the conversation.