There is a HUGE difference between planning for your spouse’s death and planning your spouse’s death. The first a prudent part of life, the 2nd can lead to a felony.
This advertisement from Albany Life looks like a poster for an Agatha Cristie film. With classic British humor, Albany points out a serious consideration. If a wife and mother stays home to take care of her family, a once common phenomenon that some people aspire to but can’t afford, and she passes away, there is no income to replace but the husband’s salary in its entirety is not enough to replace everything she provided. Here are three top priorities to consider.
Planning for your spouse’s death – Financial
Life insurance is a great way to plan for the financial devastation caused by the death of a spouse. Life insurance passes tax free to the recipient. It is part of the value of an estate for estate tax calculations.
For clients whose estate is already taxable, we can create an irrevocable life insurance trust (ILIT) to own the policy, thereby keeping the value of the insurance outside of the estate. You can read general information about ILITs here.
I work with several life insurance companies which offer policies that work well with ILITs. Some of them also offer 2nd-to-die policies which are cheaper than two individual policies but such policies do not pay until the 2nd person passes, which will provide for children but does not help at the first spouse to pass.
Investment advisors sometimes tell me they like to work with attorneys who understand their products and services, and create legal documents tailored to what they do. I chose to enter estate planning specifically because of my financial / insurance background.
Planning for your spouse’s death – Guardianship
I cannot imagine what it is like to lose a spouse. I have been divorced. Some people debate whether divorce or death is the tougher situation to endure. I don’t know the answer to that discussion. This I do know. If you are a single parent of minor children whose other parent is deceased, your children need you to create an estate plan. They are one parent away from DSHS guardianship.
Our guardianship laws exist to provide the physical, financial and legal protection children need. As a society, we need this process. I believe that everyone in this process works to the best of their ability for the benefit of the children. Even so, you can do more for them than leave them to their fate in that process.
Washington State allows you to appoint a guardian in your will. The guardianship is not automatic, in that a court appointment is still needed, but this simple statement in your will can save a guardianship contest, shortens the appointment process by several months, and can avoid children being placed in the foster care system. This appointment is allowed in your will; not on a random scrap of paper, not in your power of attorney form, not in a trust document.
Planning for your spouse’s death – Power of Attorney
When a spouse passes, all accounts that are joint owner with right of survivor-ship automatically pass to the survivor. Now, if something happens to you, no one is automatically in a position to take care of your financial and legal affairs. One of the biggest mistakes I see people make is add a child on their accounts. This makes the child an owner, creates legal rights for that child that other children do not possess, can create unintended estate planning consequences.
The better approach is to designate someone as your power of attorney. This allows them to pay bills, interact with financial service companies, deal with taxes, etc, without bestowing ownership rights.
In Washington State, a power of attorney can come into legal existence at the time of signing, or at a declaration of mental incompetency by a physician. You can create your own power of attorney form with this template in the do-it-yourself estate planning section of my website, center bottom of this page. I include financial and health care power of attorney forms for all of my estate planning clients at no additional cost.
Is it time to plan for your spouse’s death? I can help. Contact me here. I won’t help with planning a spouse’s death.