Legal Tip 202: Consider Risk of Surviving Spouse Controlling All of your assets at Death

Where there are 2 spouses and children if one of the spouses dies and the other inherits the assets of the deceased this can pose a risk to the children.


Scenario

Marge and Homer own about $2mil worth of assets – some joint some separately but roughly equal. So that is $1mil net worth each.

They have 3 children, but in their wills everything goes to the surviving spouse, if still alive and if not to the children.

This means if Homer dies Marge will inherit the full $1mil that he owned. But if Homer and Marge die together the children will inherit all of the $2mil in equal shares. What could happen if Marge inherits the $1mil and not the kids?


What’s the risk?

If Homer dies Marge could

a) Remarry

See my post on this

Legal Tip 197: Consider the remarriage Risk when doing a Will

Legal Tip 197: Consider the remarriage Risk when doing a Will

b) Spend it, or

c) Waste it, or

d) Lose it

For example, Marge might

· change when single and dramatically increase her spending on herself and others.

· She might start making donations to dubious causes and

· she might invest it in Barney’s development project which fails causing her to lose the lot.

· She might be bad at money management,

· so could fight with the kids and change her will,

· a flatmate could claim to be a spouse and make a family provision claim (has happened).


One potential solution

Leave your share of your assets to either

a) The children directly, or even better

b) To one or more testamentary trusts TDT.

This way the surviving spouse still has their share of the original assets and the children have access to their share. You can structure the TDT in many ways including

i) Giving the children complete control,

ii) Putting control in the hands of the surviving spouse,

iii) Putting the control in the hands of someone else,

iv) Making the spouse as a discretionary beneficiary, or excluding them,

v) Limiting access to the capital of the trust,

vi) Etc etc.


Where the main residence is jointly owned, this could either

a) Be left to the surviving spouse, or

b) Be left to the TDT with the surviving spouse being given a right to reside so that they cannot be forced out (and this may have CGT and land tax benefits),

c) Have the option of doing either of the above.



Seek legal advice on what you could do in your specific circumstances.

 

Only applies if owned as tenants-in-common, yes? If owned as joint tenancy - which is the most common arrangement - Marge automatically becomes the sole owner upon Homer's death, doesn't she?

I'd also add that in talking with other succession lawyers, anecdotally, there are many more instances of adult kids mistreating a surviving spouse - particularly if that spouse is a step-parent, or is a biological parent but re-marries (often adult kids seem to perceive this as 'betrayal' of their deceased parent, which I can't personally relate to) - than there are of surviving spouses / step-parents mistreating kids.

Therefore, in estate planning, I would encourage Homer to be at least as or more concerned about ensuring Marge's interests remain protected - particularly if she remarries - than the kids'.

 

Yes joint tenants can't will their share. Joint tenancies should be severed and converted to tenants in common in many cases, such as the case where there is a worry like above.

Yes I have seen kids mistreat parents - virtually forcing them to break up with no spouses because the kid is worried about losing 'their' inheritance.