Estate Planning for the Married Couple

By Kent Phelps, Esq.

A married couple commonly has 5 primary estate planning objectives:

Avoid Probate 

Couples don't want to rely on the state to divide up their property.  They want to keep control in the family and avoid the expense of costly court proceedings.

Provide for the Surviving Spouse

After the first spouse dies, couples want the surviving spouse to have the income and control he or she desires.

Provide for the Children / Heirs

After both spouses have passed away, couples want their property to be divided up in the way they decided on during their lifetimes. 

If there are any children / heirs who are minors at the time of the couple's death, the couple wants the person(s) they designated during their lifetime to be the legal guardians of the children.

Designate Who's in Charge

Couples want to choose someone they trust to distribute the couple's property to their children / heirs in the amounts and under the circumstances the couple decided on during their lifetimes.  They also want to choose medical and financial decisionmakers if they become incapacitated.

Avoid Unnecessary Taxes

Couples don't want their heirs to hand over money to the government if it can legally be avoided.  

The Living Trust for 2 estate plan achieves a couple's estate planning objectives:

Avoid Probate 

When your property is transferred to a valid revocable living trust ("living trust" for short) you no longer own legal title, your trust does. 

 

Because you don't technically "own" your property when you die (since your trust is the legal owner) you no longer have an "estate".

 

Now your heirs don't have to go to probate court to get ownership of your property as they would have to do if your estate plan consisted of a last will and testament instead of a revocable living trust.

 

Even with a revocable living trust, you still need a pourover will to designate legal guardians of minor children and incapacitated adults.

Your pourover will also serves as a safety net so that if you forget to transfer property (in Arizona, > $75,000 in personal property and > $100,000 in real estate) to your trust before your death, the probate court will transfer ("pourover") your property to the trust.  

So even though your heirs will have to go to probate court because you forgot to transfer some of your property to the trust, the pour over will ensures your property will eventually end up in the trust and back in control of your family.  

This underscores the importance of the process referred to as "funding your trust", something we take very seriously as reflected in our free Concierge Legal Services Membership for your first year with us.  We work with you to make sure all your property gets transferred to the trust.  

Provide for the Surviving Spouse

When a couple transfers their property to a revocable living trust and one of them dies, the surviving spouse is the sole trustee of the trust.

As sole trustee the surviving spouse has full control over trust assets.  They can access both income and principal of the trust for any personal wants or needs.  They decide how trust assets are invested and can sell assets of the trust.

If the surviving spouse remarries, trust assets are separate from the new spouse and the new spouse's children.  If there is a divorce from the new spouse, they have no claim to trust property.

If the surviving spouse becomes incapacitated or wants to pass trustee responsibilities to the next generation, the successor trustee (usually one or more of the children) easily steps in and continues managing the trust for the benefit of the surviving spouse through the end of their life.   

Provide for the Children / Heirs

The couple's pourover wills name the person(s) to be the legal guardians of minor children. 

 

This prevents uncertainty and family infighting over who will care for the minor children if both spouses die before all the children reach adulthood.  

The trustee of the trust (who may or may not be the children's legal guardian) is responsible for making sure the trust provides for the financial needs of the minor children.

Is estate planning just for the retired or wealthy?

The answer may surprise you...

"Do I Need an Estate Plan?"

As for adult children, the successor trustee(s) divides and distributes trust assets consistent with the instructions in the trust decided on by the couple during their lifetimes.

For young adult children, the couple typically designates the ages at which certain distributions will be made rather than give a young adult their full share all at once.

If the couple has a child with special needs, the trust contains language allowing the trustee to keep that child's share in trust so as not to disqualify the child from receiving government benefits.  Limited trust funds may be used to supplement those benefits.

The couple will also want safeguards in the trust to protect against use of trust assets to feed drug, alcohol and gambling addictions.  The trustee will have the discretion to withhold distributions from a child that would use the funds to pursue self-destructive behavior.

Designate Who's in Charge

When a couple creates a revocable living trust, both spouses serve as trustees of the trust during their lifetimes. 

 

The couple is in full control and is only accountable to themselves for use of trust funds.  There are no restrictions on the couple for how they use or manage trust funds. 

The couple can change ("amend" or "revoke") the trust anytime during their lifetime.  This is why it is called a revocable living trust.

When they create the trust, the couple designates a successor trustee(s) (usually one or more of the children) to manage the trust when both spouses have become incapacitated or pass away.  

The successor trustee is a fiduciary, meaning she is legally responsible to the beneficiaries (heirs) of the trust for management of trust assets.

The successor trustee carries out the instructions written in the trust that were decided on by the couple during their lifetime. 

 

Trust instructions ("terms") cannot be altered ("revoked") by the successor trustee.  The trust becomes "irrevocable" after both spouses pass away.

The successor trustee serves until all trust assets have been distributed to the beneficiaries and the trust is terminated. 

The successor trustee may of course resign at any time in which case the next successor trustee in line named in the trust by the couple would serve as trustee.

"Durable healthcare and financial powers of attorney are also included"

The Living Trust for 2 package includes healthcare and financial powers of attorney giving authority to those you choose to make medical and financial decisions for you if you become incapacitated and are unable to make decisions for yourself. 

 

A living will is also included telling your medical providers what type of treatment you do or don't want at the end of your life.

**This all takes place outside the court system.  By having a revocable living trust you keep control of your property in your family.**

"You are your own trustee during your lifetime"

Avoid Unnecessary Taxes

Estate tax (aka "death tax" or "inheritance tax") laws right now are very generous.  As a married couple in Arizona (which has no estate tax) you do not have a federal estate tax issue unless your total net worth exceeds $11.2million.  

**The death benefit of a life insurance police - term or whole - is INCLUDED in your taxable estate so don't forget to include this amount in calculating your estate tax exposure**

This means your heirs will not pay estate taxes (even without a trust) unless your combined net worth (value of a couple's assets minus liabilities/debt) exceeds $11.2million.

If your net worth (plus life insurance death benefit) does or may in the future exceed $11.2million, you may require advanced estate planning which incorporates other planning tools in addition to a revocable living trust.  

If you are in this situation, we can discuss advanced estate planning options available to you to ensure your heirs do not incur an estate tax liability.

Mail

estateplanningUS.com

1820 E. Ray Road

Chandler, AZ  85225

Call

T: 800-674-3582

  • Facebook Social Icon