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A Guide to Estate Planning for Married Couples

After tying the knot, there seems to be a happy bubble surrounding you and your new spouse. It’s easy to get lost in day-to-day life and feel like there’s still plenty of time to take care of the finer details. However, estate planning is a task that newly married couples should never postpone. 

Everyone’s circumstances are different, and some are vastly complicated. Talking to your new spouse about the financial nitty-gritty is not always comfortable, but it is necessary. Having your legal affairs in order straight away will provide peace of mind and allow you to enjoy married life without a cloud of uncertainty hanging over your heads.

Common Questions Married Couples Ask About Estate Planning 

Q: My spouse and I have both written wills, is that enough for our estate to avoid probate when we pass? 

A: No—your estate could still be subject to probate.

Q: What happens to our minor children if we both pass?

A: It depends on the plan you set up for them; if you do not have an estate plan, then the court decides.

Q: What type of trust is best for a married couple? 

A: Several different types could be appropriate; you’ll need to consider your financial situation, goals, and unique needs. 

Let’s discuss all three of these questions in more detail—here’s what it takes to prepare an estate plan as a married couple. 

Estate Planning Discussions for Married Couples 

At Phelps LaClair, we want to make sure you understand how to best protect your loved ones and their future inheritance. You should begin by simply talking with one another about your end-of-life wishes. Before you meet with your estate planning attorney, sit down with your spouse and discuss all the legal and financial nitty-gritty. That way, you’ll both clearly understand each other’s goals and preferences before you put a plan in writing. Here are some of the most important topics to discuss.

1: Talk about what will happen if one of you passes away. 

For example, if the spouse who is the primary breadwinner passes away, and the other spouse is used to staying at home full time with the children, what will happen? You’ll need to come up with a financial plan that covers the transitional period while the family adjusts. Likewise, if a stay-at-home spouse passes away, a plan for child care should be outlined in advance, to preserve the emotional wellbeing of the children.

2: Do you want your assets to pass directly to the surviving spouse?

Another consideration for couples with children is to decide whether or not to leave all remaining assets to the surviving spouse, or to split them between their spouse and children. Some couples prefer to divide the assets into separate trusts. This protects their children’s financial future in case the surviving spouse remarries and is later sued during a divorce.

3: Talk about what happens if both of you pass away suddenly. 

Should you both happen to pass around the same time, you’ll need to discuss how you want your estate to be handled. If you have any minor children, you’ll need to choose a guardian you can trust to watch over them in your place. And if you have pets, you can make provisions for them in your will or in a pet trust.

4: Who do you want to leave your assets to?

Many couples divide their estate equally among their children. Others choose to do things differently, especially if they have beneficiaries with varying responsibility levels or special needs. Couples without children might choose among their relatives or decide to make charitable donations.

Some recently married couples will be in a phase of life to consider leaving an inheritance to their grandchildren. For example, they may want to leave their home to a grandchild who is just starting out in adult life. Their children, who are in middle age and already established financially, may benefit more from lump sums or insurance policy payouts. 

5: Do you want to leave an inheritance outright?

When an inheritance is distributed outright, it means that the assets are handed over in their entirety, all at once. Consider your options carefully before going this route. It can be a decent way to pass down funds to an adult child who can responsibly manage them. However, their inheritance could be subject to taxes if you leave assets outright. If your children do not handle money well, or they are underage, you might want someone else to manage their inheritance for them. If you set up a trust, they can receive staggered distributions instead.

6: What property do you have between the two of you? 

Take an inventory of the financial assets you have together, both shared and individual. Include your bank accounts, investments, pensions, retirement accounts, real estate property, valuables and antiques, stocks and shares, contents of safety deposit boxes, cryptocurrency, and anything else that contributes to your means. Decide how to handle each item on your list. When it comes to specific questions on what to do with your biggest assets, like your home, ask a professional for advice. 

7: Who will be your power of attorney?

When you grant someone your durable power of attorney (POA), they will have the legal ability to make decisions for you if you are ever incapacitated. They are often given responsibilities like paying taxes, managing bills and debts, selling or managing real estate and investments, paying for your medical care and living expenses, and handling insurance matters. 

As you discuss who to name as your POA, make sure you choose someone who is able to communicate well, and who is willing to handle the responsibility. The best option is often a third party, such as an attorney or fiduciary, who is legally required to act in your best interests.

The Best Types of Trusts for Married Couples 

If you want to avoid probate, you’ll need more than just a will in your estate plan. Wills are always subject to probate in Arizona, so to avoid the long and costly process of going to court, you can set up a trust(s). This isn’t to say you shouldn’t write a will. A last will and testament gives your loved ones specific instructions for handling your estate after your death. Wills and trusts are both essential estate planning tools, but the best type of trust is different for every couple. 

Living Trusts

A revocable or “living” trust allows you to avoid probate as well as some types of taxes. You can protect assets like your home, bank accounts, financial accounts, annuities, bonds, retirement accounts, and more by placing them in a trust. This makes the trust the legal owner of the assets, so they are protected from lawsuits, probate, and inheritance taxes. 

As life changes, the way you want to handle your assets might also change. One of the biggest benefits of a living trust is that you can modify it (or revoke it entirely) any time you choose. After you pass away, it changes into an irrevocable trust, and no changes can be made.

Irrevocable Trusts

An irrevocable trust is a trust when you, as the grantor, relinquish all ownership and control over the assets held in the trust. The new owner of the assets is legally the trust itself, just like we discussed above with the living trust. The distinguisher is that an irrevocable trust cannot be altered or revoked. Once the terms are established, they are permanent. 

People primarily choose to set up irrevocable trusts for tax considerations. Since this type of trust effectively removes ownership from the grantor, it exempts the assets within the trust from the estate tax. This tax is imposed by the federal government on the value of the deceased person’s estate. If you and your spouse have a large estate, you may find irrevocable trusts to be beneficial. 

Asset Protection Trusts

This type of trust is also known as a “self-settled” trust. With an asset protection trust, you can be both grantor and beneficiary, which allows you direct access to the funds in the account. These trusts are usually established for a specific length of time, and are often used to protect assets from creditors. They can also be created to protect against Medicaid spend-down limits should you or your spouse need long-term care.

IRA Inheritance Trusts

This type of trust is specifically designed to be the beneficiary of your retirement account(s). You simply use an IRA (individual retirement account) or a company sponsored retirement plan to fund the trust. One benefit of an IRA Inheritance Trust is its ability to “stretch out” the funds by deferring the taxable minimum distributions for up to ten years. 

Schedule a Consultation with Phelps LaClair

Estate planning is not a task you should tackle on your own. If you’d like to get some personal advice, contact the experts at Phelps LaClair. We are a second-generation family firm that focuses exclusively on estate planning. We’ve been around for more than 40 years, and helped countless couples secure the future of their loved ones. We can help you put together a solid estate plan that’s tailored to your unique needs. Give us a call today to schedule a consultation.



photo by Nathan Walker | from Unsplash on 5.7.2024 | used under the creative commons license

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