To Halve or to Hold: Estate Planning for Married Couples

For better, for worse, for richer, for poorer. These wedding vows are the foundation of most marriages, but they also represent how we as estate planners create strategies for married couples. 

Each personal situation drives the type of tools used for the estate planning. There is no one size fits all approach and when it comes to a married couple, things can get a little complicated. A revocable living trust is a popular estate planning tool for married couples. A revocable living trust or RLT can be extremely useful for incapacity planning, probate avoidance (even in other states than your own), asset protection, and privacy. Depending on the married couple’s goals and circumstances, an estate plan can include either a joint revocable trust or separate trusts for each spouse. Both options offer advantages and disadvantages. Listed below are some scenarios that explore whether a joint trust or individual trusts are better. Do you see yourself in any of these scenarios?

Scenario #1 – The Blended Family

In today’s modern family, the concept of “yours, mine, and ours” is very common. The blended family is a product of re-tying the knot, in which one or both members of a couple have children from prior relationships. The blended family dynamics can include children, step-children, half-siblings, former spouses, and a collection of in-laws.

Facts: George (age 50) and Julie (age 47) are a newly married couple seeking estate planning advice. Both were married previously and prepared individual estate plans over 10 years ago. Their plans are outdated and therefore need updating. George has three adult children and 2 grandchildren, while Julie has one adult child and no grandchildren. They separately own most of their assets. While they wish to provide for each other, George and Julie want to provide for their own child(ren) and grandchildren and want to ensure the surviving spouse does not have the ability to change these terms. George owns part of the investment firm where he has worked for the past 25 years and a strong desire to leave a portion of his assets to several charities. Julie inherited a vacation home from her family and wishes that it be passed to her child and future grandchildren. 

Conclusion: In blended families or subsequent marriages, particularly where each spouse came into the marriage with their own assets, separate trusts might be the best choice. Separate trusts allow each spouse to maintain control of his or her individual assets during their lifetime and ensure their estate passes to his or her intended beneficiaries at death. Establishing separate trusts will address the concerns of George and Julie, including maintaining control during their respective lifetimes, ensuring the other is cared for after the first death, and providing for their own children and grandchildren without fear that their plan will be changed by the surviving spouse.

Scenario #2 – The “high-risk” couple

Facts: Jane (age 40) and Mike (age 45) have been married for 15 years and have 2 minor children, ages 8 and 10. They created “do-it-yourself” wills online several years ago but aren’t sure if they are legal or adequate given their current life circumstances. Jane and Mike want to do it “right” this time. Jane is an OB/GYN physician and Mike is a neurosurgeon—both are considered to be in high-risk medical specialties. Mike and Jane own a home together in Florida, have a few life insurance policies, and contribute significant amounts to retirement accounts each month. With life insurance, the total value of their estates is around $10 million. They anticipate their net worth will increase significantly as they advance in their careers. They wish to provide for each other and then their children, equally. However, given their occupations, they are worried about creditor and liability protection should either of them get sued. They do not want to put their marital estate in jeopardy. Estate tax minimization is also a concern. 

Conclusion: Separate trusts are usually the better option when creditor protection is a potential issue for each spouse. Depending on state law, if either Jane or Mike were sued, only the assets in their separate trust would likely be at risk of loss to a judgment, rather than the entire pot of marital assets. The other spouse’s trust assets should stay out of reach from his or her spouse’s creditors. Separate trusts would also allow for the creation of trusts for their minor children to ensure that, on the death of both Jane and Mike, a trusted individual would serve as trustee over the funds until their children are ready to handle an inheritance.  

For this type of couple, there are some other basic planning considerations they should implement. In Florida, Jane and Mike could take advantage of owning property as “tenancy by the entirety”; as well as, making sure their home is a protected homestead.

Scenario #3 – The “senior” couple

Facts: Pat (age 78) and Mary (age 75) recently celebrated their 50th wedding anniversary and want to mark the occasion by creating a comprehensive estate plan. They have heard about probate and want to avoid it. Mary and Pat own most of their assets jointly, including a home in Florida, and investment, checking and savings accounts. Pat mentioned that they “treat all their assets as part of the marital unit” but expressed concern that “Mary won’t know how to handle our money if I die first.” Their priority is to provide for the surviving spouse first. Thereafter, they wish to provide for their 4 children equally, but if a child is not living, then their grandchildren. Pat and Mary do not have a taxable estate. They are on a “fixed income” and are worried about the costs associated with estate planning. Mary and Pat both want to stay in their home even when the other passes away. They appear to be of sound mind and memory. 

Conclusion: A joint revocable trust might be the better option for Pat and Mary given the length of their marriage, as well as their joint assets, aligned goals, and identical beneficiaries. Joint trusts are sometimes easier to “fund” (i.e., to transfer assets into a trust), easier to administer (depending on the structure of the joint trust, they can provide for complete flexibility and control by the surviving spouse), and the goal of probate avoidance is also achieved. 

Scenario #4 – The “windfall” couple

Facts: Linda and Tom have been married for 20 years and have no children. Tom comes from a generation of family business owners and expects a large inheritance from his recently deceased father. He wishes to keep this inheritance separate from his marital assets to provide for charities and several nieces and nephews upon his death. Linda has been a manager with a software company for her career, has several sisters who she is close with, and wants them to receive the bulk of her estate at her death (given Tom’s independent wealth, she is not concerned about providing for Tom). Linda and Tom rent a condo in Chicago, have a few life insurance policies, and several individual retirement accounts. Their combined estate is approximately $14 million. Tom is unsure of the exact amount of his inheritance but is worried about estate tax minimization. 

Conclusion: Separate trusts are usually the better option when one spouse expects to receive an individual inheritance and wants to keep it separate. Their differing wishes for the ultimate disposition of their estates might also be easier to achieve through separate trusts. While providing for the other is not a huge concern given their independent financial situations, they can still do so with separate trusts while ensuring their wishes to provide for charities and other beneficiaries are fulfilled. This scenario also provides many facts that would suggest more advanced estate planning techniques such as charitable trusts, life insurance trusts, and possibly specific investment vehicles.

With all these scenarios, we must emphasize how crucial it is that you fund your trusts. Whether you go through the separate or joint trusts, they won’t work as planned if you haven’t funded your trust. Funding your trust includes retitling accounts and properties to the name of the trust and updating beneficiary designations for accounts and policies. We created a blog all about the importance of funding your trust. Click here to view the blog.