Most couples have what I call “I Love You” Wills, which state that all of their assets pass to the surviving spouse. Moreover, many couples own all of their assets jointly, so the assets pass to the surviving joint owner even without a Will.
This is usually the outcome that couples want, but there are some circumstances when an “I Love You Will” is not recommended. It has nothing to do with how much you love your spouse. In fact, avoiding I Love You Wills is sometimes a great way to show your love for your spouse and your family.
Why Should an “I Love You Will” Be Avoided?
If your Will states that you leave all of your assets to your surviving spouse or if you own all of your assets jointly with your spouse, then your surviving spouse will have all of your joint funds in his or her control.
This is great if you want your spouse to be able to use the money you accumulated over your lifetime for their needs and desires.
1. Your Spouse Needs Long Term Care
But what about when the spouse has an illness that requires expensive long-term care? Many times we do not know if someone will end up needing expensive long-term care.
Sometimes we do know because the person is diagnosed with an illness, such as Alzheimer’s. It is in those situations when it may not be in the best interest of the couple or their heirs to have joint accounts and an I love you Will.
Alzheimer’s disease is debilitating and can be costly. But, having a diagnosis of Alzheimer’s or dementia does not necessarily mean that the spouse will die before the “well” spouse, who is likely the primary caregiver.
If the caregiver spouse dies before the spouse who needs care and all of the couple’s assets pass to the spouse who needs care, then all of those assets will need to be spent on the spouse’s care before that spouse can qualify for any state or federal benefits.
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An Asset Protection Will Could Be a Better Path
In the alternative, the caregiver spouse could prepare a Will that does not leave everything to the spouse who needs care. Thereby protecting those assets for the couple’s heirs. There are certain protections in the state statutes that allow a spouse a certain portion of the estate. Which means that you cannot disinherit your spouse completely.
It is advisable to include certain provisions for the spouse in your Will. An experienced elder law attorney can prepare a Will that protects the assets as much as possible, while not ignoring the State laws that protect spouses.
What if your spouse has a long-term care insurance policy or a sizable retirement account of his or her own? Well, then you may not be worried about protecting assets from having to be spent on his or her long-term care. But there are other considerations to review before settling on an “I Love You Will”.
2. You Want Different Contingent Beneficiaries
Do you and your spouse have the same contingent beneficiaries? The contingent beneficiaries are the people or entities that you want to inherit your estate if your primary beneficiary (in this case, your spouse) does not survive you.
If you have children, they are usually the contingent beneficiaries. ButIf you and your spouse have different children, then your contingent beneficiaries may not be the same. If you do not have children, then you also may have different contingent beneficiaries than your spouse (you may each want to name your own siblings, for example).
Since it is usually impossible to know who the surviving spouse will be, with an “I Love You Will”, couples often combine their contingent beneficiaries, and their Wills will mirror each other. The thought is that no matter who the surviving spouse is, those contingent beneficiaries will share the remainder of the estate when the survivor dies. This can and certainly does happen and work. But it is not guaranteed.
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When you leave everything to your spouse, they then have the right to change their own Will. Over time, after your passing, your spouse may lose touch or have a falling out with one or more of “your” beneficiaries and decide to write them out of the Will.
This is completely within the prerogative of the spouse if all the assets are in his or her name. Even if you have the same contingent beneficiaries, this could happen.
If your spouse gets remarried after your death, or becomes very charitable, or has a falling out with one or more of those beneficiaries. Even if it is the spouse’s own child, the spouse can change his or her Will and name a completely new beneficiary.
If that beneficiary then survives the spouse, all the assets pass to that person and may never end up with your contingent beneficiaries.
To try to ensure that your assets pass to your contingent beneficiaries, rather than having a simple “I Love You Will”, you can establish a trust. This can be for the benefit of the surviving spouse but is irrevocable upon your passing. Meaning that the spouse cannot change the ultimate contingent beneficiaries.
3. You Have a Large Joint Estate That’s Over The Tax Exemption Limit
What if you have successfully grown your estate to values that meet or exceed the estate tax exemptions? Currently, the estate tax exemption under federal law and Connecticut law is $12,290,000. Many people do not have to worry about exceeding those exemptions. If your estate does, then you would not want to leave everything to your spouse either in joint accounts or in an “I Love You Will”.
Why? Because those exemptions are per person. If, as a couple, you have $13,000,000 and you have an estate plan that leaves everything to the surviving spouse, you leave the spouse with a taxable estate that would owe $150,000 upon his or her death.
This tax could easily be saved if you structure your estate plan to take advantage of BOTH of your estate tax exemptions. Thereby allowing the assets to pass estate tax-free.
This type of planning requires that you do not leave everything directly to the surviving spouse. But instead to someone else. Including a trust that is established for the benefit of the spouse.
Whether you have a large estate that could owe tax upon your passing or your estate is more modest and you are concerned about depleting it with the cost of long-term care, you could benefit from estate planning that includes documents that go beyond an I Love You Will.
As part of the process, it is important to review and re-title your assets to make sure the assets will not automatically pass to the spouse. Either because they are jointly owned or because of a beneficiary designation.
If you’re in Connecticut and would like to discuss estate planning or elder law with us, please call (860) 669-1222 to schedule a consult. Especially if you think this type of planning might benefit you.
Joan Reed Wilson Esq. – Managing Partner
Practices in the areas of estate planning, elder law, Medicaid planning, conservatorships, probate and trust administration, and real estate. Admitted to practice in the States of Connecticut and California, she is the President-elect of the CT Chapter of the National Academy of Elder Law Attorneys (NAELA), an active member of the Elder Law Section of the Connecticut Bar Association, accredited with the PLAN of CT for Pooled Trusts, with the Veteran’s Administration to assist clients with obtaining Aid & Attendance benefits for long-term care needs and with the Agency on Aging’s CareLink Network.