Don't Leave It All to Your Spouse
It’s so common that estate attorneys call it the “I Love You” Will. If you die, you leave everything to your spouse; in the event your spouse dies first, you leave it all to your children. But this simple strategy could lead to unexpected problems for the simple reason that life isn’t always so simple.
Consider: Richard and Ashley have two children. Richard dies, leaving everything to Ashley. Ashley then marries Tom, a widower with three children of his own. Ashley dies, leaving everything to Tom. When Tom dies, he leaves everything to his three kids. Result: Richard and Ashley’s kids get nothing.
Consider: Mike and Sue have a net worth of $4 million. For simplicity, we’ll assume the money is owned equally between them. Each leaves their share to the other. Sue dies first, so Mike becomes sole owner of the assets. Later, Mike dies, leaving the 4 million dollar estate to the children. The kids lose $780,800 to federal estate taxes.
Consider: At Raul’s death, he leaves $1 million to each of his children; Jackie aged 22, Ginger, 25, and Harold, 27. The daughters seek professional advice, but within three years, Harold is broke and he begins to ask his sisters for money.
Each of these problems was caused by “I Love You” wills. Here are better solutions: Richard and Ashley should have left their money to a trust, not to each other. The trust could provide income for as long as the surviving spouse lives, but upon that second spouse’s death, any unspent money would remain in the trust for the benefit of the children. This way, there’s less risk that the assets would leave the family.
Mike and Sue should have established revocable living trusts, funding each with half their assets. This way, upon the second death, the kids would inherit their parents’ estate with no tax liability, based on current tax law.
Raul could have left each child’s inheritance to a trust, stipulating how and when money would be distributed to each child. This type of “spendthrift” trust is useful when leaving money to heirs who might not handle it responsibly.
These are just three examples that demonstrate why simple wills are usually not the best idea. If it’s been a few years since you’ve reviewed your estate plan, talk with your financial or legal advisor today. Remember: When it comes to estate planning, you might not have a tomorrow.