Aug 24, 2023
Newlywed? Here’s an Estate Planning Approach for You
We believe anyone who wants a lasting say in decisions about their health care, finances, family and legacy should have an estate plan. Here are some specific estate planning considerations for those who were recently married.
Congratulations on tying the knot! After your friends and family return home and your honeymoon comes and goes, it’s time to enter a different phase of marriage. While you married your partner because you love them, remember that the government sees your marriage as a contract. It may not sound romantic, but you are now an economic unit in a financial partnership, and it’s time to think about estate planning. Here are four items to consider:
Make your new spouse your beneficiary
The first thing we suggest focusing on is updating your beneficiary elections in your retirement accounts. You can log in to your custodian and elect your new spouse as the beneficiary on IRAs, Roth IRAs, 401(k) plans and other retirement accounts you have. If you were to pass away, these accounts would flow by contract to your elected beneficiary.
Next, consider moving your checking and savings accounts to Transfer on Death (TOD) accounts. TOD accounts will automatically transfer your assets to your named beneficiary, skip the probate process and take precedence over a will.
If you have life insurance policies in place, including basic group life insurance policies you are given as a workplace benefit, remember to update the beneficiary elections there as well.
Updating your beneficiary elections on your retirement plans, insurance policies and bank accounts can usually be done quickly online. If you were to pass away, these policies and accounts would flow directly to the beneficiary, and they will thank you for thinking ahead.
Draft your estate planning documents
Once your beneficiary elections are updated, we suggest enlisting the services of an estate planning attorney and drafting your initial estate planning documents. Here are a few common documents:
Will.The will directs where your non-retirement assets (bank accounts, real estate, brokerage accounts, etc.) will go upon your passing in the manner and form you wish. Your will is the place to name your executor (someone who executes the actions specified in the will) and any guardians for minor children. You can also specify any tangible items or monetary gifts you want given to specific people or organizations upon your death.
Financial power of attorney.This document nominates who you want to be in charge of your finances if you were unable to do so yourself. Should you become incapacitated by something like an accident or illness, they would pay your bills and handle any other financial matters that come up.
Medical power of attorney.Like the financial power of attorney, the medical power of attorney is someone you nominate to take charge of your medical care should you be unable to make coherent decisions on your own. This document is also called a health care proxy.
Advance medical directive.Different from the medical power of attorney, the advance medical directive is a list of instructions on how you want to be cared for should you become incapacitated. This document lists detailed instructions on the types of medical care you wish or don’t wish to be provided with (like CPR and feeding tubes) in case of a life-threatening condition.
To make the process run smoother with your estate planning attorney, we suggest you think through your wishes ahead of time. You will likely wish to nominate your new spouse as your primary executor and financial and medical powers of attorney, but in case something was to happen to both of you at the same time, we recommend listing secondary people to those positions. Secondary executors and powers of attorney are often siblings, good friends or parents.
Common law vs. community property states
The next phase of your estate plan is dictated by the state you live in and requires no action on your part. Property that you entered into the marriage with, as well as any gifts or inheritances you receive during your marriage, is considered separate property and remains so during your marriage.2 Assets that you accumulate while married are either community assets or separate assets, depending on the state you live in and how the asset was acquired.
There are nine community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin—where assets accumulated during marriage by either spouse are considered jointly owned property in the case of divorce. Income and debts are also jointly split while in the marriage.3 Community property laws may seem unfair to the spouse who earns a higher income or accumulates more assets during the marriage, but the laws are designed to protect stay-at-home parents who contribute equally to the marriage in non-financial ways.
In the other 41 states, assets accumulated during the marriage are owned by that individual unless they are jointly purchased. In common law, when a spouse dies, any property they separately purchased is distributed according to their will,4 which is why a will is one of the first estate planning documents we recommend to put in place when you get married.
In whose name should your assets be?
While assets accumulated in the nine community property states are split evenly, if you live in a common law state, how you title jointly purchased assets during the marriage is important. As a married couple, you have a few different options to choose from.
Joint tenants with rights of survivorship (JTWROS).Property held JTWROS can be held by spouses, parents, adult children, siblings or business partners. The property and income are split equally among all joint tenants. Upon the death of each tenant, the property immediately passes to the surviving joint tenants in equal shares. The assets are excluded from your probate estate and are not controlled by the terms of your will.5
Tenancy by the entirety (TE).Property held TE can only be held between two spouses. The property is equally divided between both spouses, and any transfer of property held TE can only occur with the mutual consent of both parties. Assets held TE are also not subject to probate. When one spouse dies, their 50% interest is automatically transferred to the surviving spouse.6
Tenancy in common (TIC).Property held TIC can be owned unequally by several owners, meaning you are entitled to the division of income from the property according to your proportional interest in the property. TIC assets are subject to probate and have no survivorship rights when one owner passes away. This means that when a tenant dies, their ownership stake is passed on to an heir or beneficiary of their choosing,7 not necessarily one of the other TIC owners.
Married couples will likely choose between joint tenants with rights of survivorship and tenancy by the entirety for the jointly owned assets in their marriage. While assets held JTWROS and TE are both split 50/50 between the couple and pass automatically to the surviving spouse, there is a difference when it comes to creditor protection. Tenants by the entirety are considered a single legal entity, while joint tenants are not. Assets held by spouses as TE are protected from the claims of each spouse’s separate creditors but are not protected from the claims of both spouses’ joint creditors. Assets held by JTWROS, on the other hand, are not protected from the claims of an individual spouse’s creditors.
Final estate planning thoughts for newlyweds
While estate planning is likely the last thing on your mind as you begin your journey in marriage together, we see it as the gracious thing to do for the people you love, especially your new spouse. We believe that it is wise to work with a professional wealth advisor and estate planning attorney to create your plan, protect your assets, ensure that your wishes are honored and establish a solid foundation for the future.
ABOUT THE AUTHOR
Zack Morse is an Associate Wealth Advisor at Corient. After growing up in Seattle, he received his B.A. from The Elliott School of International Affairs at The George Washington University where he double majored in International Affairs and Political Science. Zack stayed in Washington, D.C. after graduation and began his career with a focus on internal staff development work. After moving to the tri-state area, Zack worked for an insurance agency in New York City and with clients on their life and disability insurance needs. Zack is responsible for analyzing a client's financial picture, preparing recommendations, and assisting the Wealth Advisors in developing strategies that help clients in reaching their goals. Zack holds the Series 65 license, and passed the July 2022 CFP Exam.
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
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