Estate Planning for Married Couples

An estate plan is an important part of any adult’s basic legal portfolio, but making thorough and thoughtful provisions for your own end-of-life becomes especially prescient when you form a legal union. Though it varies by state, the legal “community” that spouses enter when they marry means that their individual estate planning, if left unaltered, may have a profound, potentially adverse effect on their partner’s well-being at the time of death. Marriage entitles spouses to jointly file taxes, share income and property, and enjoy official recognition as married individuals, which affects how assets are allocated after the death of one partner. Thus, once the final toasts have been made in celebration of a marriage or a domestic partnership, it’s important that couples come to some considered conclusions together regarding their estate plans.

An estate plan is comprised of written documents that, in conjunction, outline each spouse’s end-of-life wishes and direct the distribution of assets after death. Generally, a good estate plan includes a Last Will and Testament, a Health Care Directive and a Power of Attorney.  The first clearly delineates the division of assets after death as administered by an appointed executor. The second, sometimes referred to as a Living Will, specifies your wishes regarding medical treatment and appoints your legal health care representative if you become incapacitated or unable to communicate for yourself. The third grants a specified agent the power to act on your behalf in matters of business, finance or real estate if you’re no longer able to do so.

Besides the obvious benefits of a clear blueprint for your wishes in the event of your incapacitation or death — when high legal stakes are often compounded by confusion and grief — the estate plan is also essential for making clear financial provisions for your family going forward and for lowering the tax costs and legal fees associated with property distributionProbate can be an expensive process, so taking the time to understand together the difference between separate and shared property lays the groundwork for marital estate planning. Separate property is the property owned by each spouse individually, that which was owned prior to marriage or has been delineated in a Prenuptial Agreement gifts/inheritance received before or after marriage and personal injury proceeds. Shared or marital property is jointly owned by both spouses together, including property acquired using money either spouse earned during marriage, income earned or assets appreciated due to marital efforts and property given to both spouses during marriage, such as wedding gifts. Also classifiable as marital property — and often responsible for the most consternation in divorce proceedings or probate — is separate property that has been mixed with marital assets, such as an inheritance deposited into a joint bank account.

Estate planning is also affected by your state of residence. In Community Property States, like California, marital law dictates that ownership of shared property is split equally (50/50) between spouses.  When one partner dies, the surviving spouse is entitled to the deceased partner’s share of marital assets, while the remainder of the deceased partner’s separate property is divided according to their Will. However, debts are also shared equally in marriage, and if outstanding debt exceeds the worth of the shared property, these assets will need to be used to pay off the deceased’s debts before any property can be transferred to the surviving spouse.

Things can shake out differently in Equitable Distribution (or Common Law) States, which examine a number of factors when determining how to distribute marital assets in the event of death or divorce. Those factors include each spouse’s income, the surviving spouse’s age, health and earning potential, the length of the marriage and each spouse’s relative financial contribution for its duration, accustomed standard of living and the ongoing financial needs of any dependents who survive the marriage. Debts, however, are divided according to the legal definitions of separate and shared property.

Once you’re clear on the nature of your separate and shared property, as well as the legal requirements of your state, you can begin to discuss your wishes for your individual estates and your shared goals for your marital property, including guardianship for children and/or pets, particular bequests of separate property and a distribution plan for marital property that will help save probate costs and taxes to beneficiaries in the foreseeable event of a single spouse’s death, as well as the less likely death of both spouses’.  In all cases, thorough planning with good legal counsel early in a marriage saves money and heartache in the unpredictable future.

For more information on estate planning for married couples contact us HERE