Many people start thinking about estate planning after a significant life event spurs them into action, such as marriage. Getting married is a pivotal point in someone’s life when they realize they are no longer just responsible for themselves but another person as well. You want to know your spouse will be okay after you’re gone.
If you’re concerned about how your spouse will manage after you pass away, it’s best to be proactive and start preparing now. In this guide, we’ll address several actions you can take to ensure you provide for your spouse after you’re gone.
Prepare your estate planning documents
First things first, it’s time to get your estate planning basics in order. Use the following checklist to confirm you have everything you need to ensure a smooth estate settlement for your spouse.
Here are the basic estate planning documents you should create as soon as possible:
- Last will & testament
- Advance healthcare directives
- Durable power of attorney
- Beneficiary designations
Create a trust
One of the best ways to provide for your spouse when you pass away is by creating a trust. Many people have heard of trusts but are less clear on their actual benefits. You may think that the best way to provide for your spouse is to leave your entire estate to them in trust — but that isn’t always the case.
Though this option usually works out great for your spouse, it may not meet all of your comprehensive estate planning needs or cause unintended consequences. For example, you could leave your entire estate to your spouse. Either intentionally or unintentionally, your spouse leaves the estate to their next spouse or to someone who may have adversely influenced them.
Fortunately, creating a trust allows you to provide for your spouse and protect your children's future inheritance or other beneficiaries by leaving your estate to your spouse in a trust.
Your spouse receives all the trust income after your death and is authorized to receive principal distributions from the trust, but you get to direct where the trust estate goes when your spouse later passes away.
This “spousal trust” option, when crafted appropriately, allows a married person to provide for their spouse and balance the desire to ensure that your children or other beneficiaries will inherit when your surviving spouse later passes away.
Leave some assets out of the trust
Many people don’t realize how customizable trusts are. For example, you can provide a combination of outright and in trust bequests. You could say, “When I pass away, I want my spouse to own my $1 million home, but the rest of my estate will go into a trust upon my death.”
You could then provide further specifications for your spouse, such as how they should receive trust income and when. You could add language that states that the trust estate should revert to your beneficiaries versus your spouse’s future beneficiaries when your spouse dies. This protects your legacy from falling into the wrong hands.
Name your spouse as executor and trustee
If you want to provide for your spouse when you pass away, consider naming your spouse as both the executor of your will and the trustee of any trust you establish, particularly the aforementioned spousal trust.
When you name your spouse as the executor of your will, the trustee of your living trust, and the trustee of the spousal trust, you give your spouse the authority to call the shots regarding your estate settlement and the management of your assets after your death.
Ideally, you don’t want to leave your spouse with a hefty estate tax bill. Many people don’t realize there is a way to set up your estate documents so that you owe zero federal estate taxes when you pass away — regardless of the size of your estate or federal estate tax exemption in the year of your death.
There could be nothing worse than your spouse having to sell your prized possessions immediately after your death to create liquidity to pay estate taxes — due within nine months of your death.
Your spouse's requirement to pay this tax is completely avoidable by taking advantage of the unlimited estate tax marital deduction provisions in our Internal Revenue Code. Tax law permits couples to set up their estate so that no tax is required to be paid when the first spouse dies.
Generally speaking - that tax gets deferred until after the surviving spouse dies - but you have to be proactive in your estate planning legal documents to take advantage of this unlimited estate tax marital deduction.
Since we do not know what our unpredictable government will do with the estate tax exemption in the future, you want to make sure you cover this “estate tax avoidance” aspect of your estate planning.
Consider no-contest provisions
Another powerful way to provide for your spouse is by integrating no-contest provisions into your estate planning documents. This is especially critical if you anticipate that someone will make your spouse’s life difficult while going through your estate settlement process.
A no-contest clause can be a deterrent to someone attempting to harass your spouse by making frivolous claims as part of your estate settlement process.
You never know when your time is going to come. If you want to ensure your spouse is taken care of no matter what, get your estate plan before it’s too late. Consider creating and customizing a spousal trust, naming your spouse as executor, and start managing your estate tax bill today. Your spouse will appreciate that you took steps to help ease some of their burden during such a difficult time.