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Focus on Financial Planning: Estate Planning for Married Couples

Estate planning is for people who want to plan out, in advance, how they would like their assets distributed and managed after death. It’s also an important part of an overall financial plan. Failing to plan your estate may lead to unnecessary costs and financial confusion for your family. Estate planning also involves making decisions about the care and welfare of dependents should something happen to you. 

Estate planning is an especially good exercise for married couples, particularly those with minor children. Putting together your plan as a couple involves making decisions about who will care for your minor children should anything happen to you both. If your children are grown, maybe it’s time to put together a Living Trust so that your assets can pass directly to your adult children upon your death, without going through probate. Whether or not you have children, it’s also a good time to share what you do and don’t want in terms of the distribution of individual personal property. For example, maybe you’d like your spouse to give your old guitar to your best friend from high school.

It’s never too early for a married couple to put together an estate plan, as life is full of uncertainties. You can always make adjustments to your plan as time goes by. The following information will help married couples understand the basics of estate planning and how it fits in with an overall financial plan.

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What are the most important estate planning documents for married couples?

Although no two married couples are alike, certain estate planning documents are invaluable. Our Estate Planning Worksheet for Married People can help you determine your specific legal needs, but the following documents are particularly useful:

  • Living Trust. A Living Trust contains assets from either or both spouses and is managed by a trustee, which may be you and your spouse as co-trustees during your lifetimes. This type of trust is not subject to probate, so it allows for quick disbursement of resources after you or your spouse dies or becomes incapacitated. 
  • Last Will and Testament. Unlike a Living Trust, a Will takes effect only upon your death and must pass through probate before assets are distributed. Wills allow you to choose who will inherit your property, name a Guardian for dependents, and specify funeral arrangements.  
  • Durable Power of Attorney. A Durable Power of Attorney names a trusted individual (called an “Agent”) to manage your finances if you become incapacitated. 

Should my spouse and I create a Living Trust, a Will, or both?

There are good reasons to have both a Will and a Living Trust. Living Trusts and Wills are sometimes considered interchangeable. That’s not necessarily the case, although there is some overlap. 

First, how are Wills and Living Trusts different? One big difference is that a Living Trust takes effect the moment it’s signed in accordance with state laws. In contrast, a Will (sometimes referred to as a “Testamentary Trust”) does not take effect until you die. Another big difference is that, while both Wills and Living Trusts pass your assets to loved ones after your death, the assets in a Living Trust do not go through probate court. Not having to go through the probate process saves your estate, and your beneficiaries, a lot of money in attorney and court fees. Trusts may cost more to set up initially, but they tend to offer more flexibility and substantial savings down the road. 

So why have both a Will and a Living Trust? Even if you establish a Living Trust, it’s still a good idea to make a Will so that you can name an Executor who can take over the estate management process after your death. Also, there are assets that may not make it into your Trust. Maybe you have too much stuff to try to transfer to your Trust (like small personal items) or you acquire things after you’ve made your Trust and these items never make it into the Trust before your death. A Will may take into account all of your property, whether or not it’s named, and may capture all of the things that didn’t make it into your Trust. Another reason to have both is that you can’t name a Guardian for minor children in a Living Trust, but you can in a Will.

Married couples typically opt for a Revocable Living Trust. A Revocable Living Trust may be altered to account for major life changes, such as the birth of a child, as long as both spouses are of sound mind. A Joint Trust allows both spouses to control the assets as long as they both have the capacity to do so. Alternatively, some spouses prefer to form separate, Individual Trusts.  

Wealthy couples may choose to establish an Irrevocable Trust, since assets transferred to this type of Trust may be excluded from their estate taxes. 

The type of Trust you, as a couple, should choose is a good question to ask a lawyer. The answer will depend on your particular situation and needs.

What are the main reasons for having a Durable Power of Attorney?

It’s common to set up a Durable Power of Attorney along with a Will and Living Trust. This allows you to name a trusted individual to manage your legal and financial affairs if you are unable to perform these tasks. It entrusts the named individual with significant control over your affairs, such as:

  • Management of cash, stocks, bonds, retirement accounts, and other financial accounts.
  • Property management.
  • Fiduciary and legal agreements with third parties.
  • Application for public benefits, such as Medicare.
  • Emergency estate planning documents.

Even if your spouse knows exactly how to manage such affairs in your absence, it may be a good idea to make it official with a Durable Power of Attorney. This decision will depend on the complexity of your legal and financial affairs. If your health condition would lead to serious consequences because certain legal and financial responsibilities would be neglected, then you certainly should consider setting up a Durable Power of Attorney. 

Plan your estate after tying the knot, and don’t be afraid to get help

Marriage is a financial partnership as well as a lifelong commitment, and it should be treated as such. Reviewing your options for a Living Trust, Last Will and Testament, Durable Power of Attorney, and other estate planning tools will go a long way toward ensuring your financial well-being as a couple. If you have questions or concerns, don’t hesitate to ask a lawyer.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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