People often wonder how they should approach estate planning when they’re married. Should both spouses go together to see their estate planning advisors, or create their own separate plans? How does being married affect estate tax planning? How should you account for joint assets in estate planning? And what happens after a divorce? Suffice it to say, estate planning and marriage can intersect in a lot of ways.
That said, estate planning for married couples isn’t necessarily a lot more complicated than estate planning as a single person. Every individual’s situation and needs are unique, and your advisors can talk you through everything you need to know, but here are some general answers to some common questions.
Married couples certainly aren’t required to do estate planning together, or even work with the same estate planning advisors, but it’s a common-sense way of making sure you’re on the same page. Typically each spouse will create their own will and complete other estate planning documents individually. Trusts can be created by you as individuals, or together if you each want to fund the trust from your own money.
Speak to your advisors together if you can. It ensures you both have the same information and that your estate plans aren’t in conflict. You don’t want to name different people as guardians for minor kids in your wills, for example. Estate planning together is also cheaper than doing it separately in your own appointments with professional advisors.
Deciding how to title assets that you share can be a complicated part of estate planning. Each partner may want to keep certain assets in their own name. This will protect them from becoming the other spouse’s property in case of divorce, and can have estate planning tax advantages. Assets that you share jointly will become sole property of the surviving spouse when the first spouse passes away.
The concept of portability can be important for estate tax planning for married couples. The federal estate tax does allow for portability up to the $12.92 million threshold in 2023. This means that when one spouse dies, the surviving spouse can use any of their unused estate tax exclusion amount for themselves. So if Spouse A dies in 2023 with an estate valued at $10M, they didn’t use $2.92M of their estate tax exclusion. Let’s say Spouse B dies later the same year. Their estate can add Spouse A’s unused exclusion to Spouse B’s individual $12.92M exclusion amount and shield as much as $15.84M ($12.92M + $2.92M) from estate taxes. In this example, the wealthy couple’s heirs are able to take full advantage of portability by shielding a total of $25.84M from estate taxes.
However, states with their own estate taxes don’t necessarily have portability. The Massachusetts estate tax doesn’t allow for it, which makes estate tax planning even more important for residents. If your spouse only uses half of their $1M estate tax exclusion, your estate still only gets to shield $1M from estate taxes.
It’s always a good idea to review your estate plans after ending your marriage. Let’s say you don't get around to updating your estate planning documents, and then you’re seriously injured in a car accident. You probably don’t want to regain consciousness to find that your ex-spouse has been making medical decisions for you while your new partner is stuck in the hospital lobby. And if you died before updating your life insurance, you probably wouldn’t want your ex getting your death benefit.
There are exceptions, of course. Some former spouses maintain a close relationship after divorcing and still trust and support one another. But most people will want to revisit their estate planning documents. You may want to update your will to name a new personal representative and remove your ex as one of your heirs. Create a new health care proxy and HIPAA authorization and send copies to your health care providers. Update your beneficiary designations for life insurance and retirement policies. You may also want to take further steps to ensure you’ll keep certain assets in the family; for example, you’ll probably want to make sure your ex isn’t set to inherit any part of your family’s vacation house or your grandmother’s jewelry if you die before them.
Divorced couples who continue to co-parent naturally have additional estate planning complications to work through, especially if one or both parents remarry. Speak to your estate planning advisors about any changes to your family structure so we can adjust your existing plans to reflect your new life.
Take a look at our recent Ebook, “Estate Planning for Every Stage of Life,” for more on Estate Planning in different stages of life. The estate planning advisors at Sachetta, LLC work with clients at all stages of life. Whether you’re currently engaged, married or separated, we’re here to help you craft the estate plans that protect everyone in your family. Contact us today with any specific questions about estate planning and marriage.
Stephen P. Ahern, CPA/PFS, CFP®, AEP®, MST
provides individual financial, investment, estate and tax planning and small business consulting to a diverse base of clients including key top-level executives, high-net-worth individuals, business owners, venture capitalists, and entrepreneurs. Stephen co-founded and served as President of Wealth Management Advisors, LLC for twenty-one years before joining the Sachetta team.