You and your spouse live your lives as one. You’ve been together for years. It seems the simple solution is to just leave everything to each other upon your deaths. Unfortunately, in this situation, the simplest solution may not be the best.
First, if you leave everything to your spouse, they will be estate taxed on it at their death. If together you have more than $1 million, or expect to have that much by the time you both die, that could be a problem, depending upon the year you die.
If you leave assets to your spouse, their creditors can attach the assets. Further, if they remarry, the assets could end up going to their new spouse if they end up getting divorced down the road. Few of us want to imagine our life savings ending up going to our spouse’s future ex-spouse!
While these divorce, creditor, and tax issues are problematic, you do not want to impoverish your spouse either. Ideally, your spouse would have control over the assets and could use them for their benefit. But, in this instance, you can have your cake and eat it, too! You can leave your assets in trust for your spouse.
The assets can be left in a “Family Trust” which is for the benefit of both your spouse and your descendants. This is designed to make use of the amount you can pass free from estate tax. The amount over that amount can be left in a “Marital Trust” which pays income only for the surviving spouse during their lifetime. The Marital Trust must pay all income to your spouse annually.
With both the Family Trust and the Marital Trust, you have great flexibility in achieving your goals. If you want your spouse to have maximum control, they can be the trustee and make investment and distribution decisions. However, if you are concerned that your spouse may not have the desire or ability to manage the finances, someone else or even a bank trust department can be asked to serve as trustee.
Further, your spouse can be given a power to decide where the assets go after their subsequent death. For example, you might say that upon your spouse’s death the assets go equally to your two children unless your spouse decides otherwise. At your death, perhaps the kids are young and it may not have been clear who would have the greater needs. Your spouse is fortunate to live long after your death and watches your daughter grow up to be a successful entrepreneur worth millions of dollars. Your spouse also watched your son enter into a helping profession and admired his work with children with disabilities. He was inspired to do that because he has a disabled child of his own. After discussions with both your children, your spouse may decide that, while the love that you share for your children is equal, their needs are not and perhaps your son should get more financial assets.
Trusts are a flexible tool to help achieve your goals. An attorney who focuses their practice on estate planning can help you design a plan that achieves your goals.
Mr. Ronald “Chip” Morrison, Jr. is a Board-Certified Specialist in Estate Planning and Administration by Louisiana Board of Legal Specialization and a member of the American Academy of Estate Planning Attorneys. He has been engaged in Louisiana trusts and estate law for the last 18 years. He can prepare an estate plan for you that achieves your goals of passing your assets to your loved ones. For more information or to attend an upcoming seminar, please call our Metairie office at (504) 831-2348 or contact us through our website.