It’s hard to consider the grief and sorrow that comes when a spouse passes. However, the year following the death of a spouse is an important one for the surviving spouse as there are number estate planning considerations and decisions to be made. This article is primarily concerned with those who survive the deceased, specifically the “surviving spouse”. Here are a few estate planning items for the surviving spouse to consider:
- Take care of your deceased spouse’s estate. Hopefully the deceased spouse had all of his/her assets inside a trust or through other means of avoiding probate court, such as joint tenancy or using beneficiary designations. If not, then the deceased spouse’s estate will need to be administered via the probate court process. This is a state-specific process and one that should be handled by a licensed probate attorney in the state where the deceased spouse was living at the time of their death. Often times this responsibility falls on the surviving spouse to oversee this process, unless the deceased spouse had a will and appointed someone else to be the Executor/Personal Representative of the state. If the surviving spouse is tasked with this responsibility, since there are typically deadlines that need to be met (again, state specific) and because the surviving spouse will likely be in mourning, I strongly recommend engaging a licensed probate attorney to handle this.
- Comply with the provisions of the family trust, if one is setup, as it pertains to your spouse’s death. Hopefully you and your spouse have a trust (either a joint family trust or some version wherein sub-trusts are created, or a separate trust for each spouse depending on the circumstances). If so, then such a trust very likely provides instructions as to what needs to happen upon the death of the first spouse. The surviving spouse is probably the trustee who has the legal responsibility to carry out the provisions of the trust, in which case, like #1 above, it is strongly recommended to receive legal advice on how to accomplish this. But sometimes the surviving spouse is intentionally not selected as the successor trustee in which case if the surviving spouse is the beneficiary of such a trust, they should make sure they have a copy of the trust reviewed by an attorney to ensure that their rights as beneficiary are recognized by the trustee.
- Make the portability election as needed. As you may have heard, there is the dreaded estate tax. Well, actually, similar to income tax, there is an exemption amount. In the case of estate tax, the exemption amount is currently $5.45M. That is per individual, so with a married couple, it’s $5.45M x 2 = $10.9M! That’s a fairly large exemption so it’s not as common as it once was for estate tax to be due. Portability is when the surviving spouse claims the deceased spouse’s unused portion of the deceased spouse’s estate tax exemption limit. For example, assume the deceased spouse dies with a taxable estate of $1.5M. The deceased spouse still has $3.95M ($5.45M-$1.5M) available that is not used. The surviving spouse, unless the law changes, still has $5.45M available as an estate tax exemption but by making the portability election on the deceased spouse’s estate tax return, they can claim the deceased spouse’s unused portion as well thereby increasing the available exemption amount for the surviving spouse to $9.4M ($5.45M + $3.95M). Although it might not be necessary in all situations, this can be very helpful to a surviving spouse, particularly one who has taken over the family business and/or real estate, which value could appreciate significantly over their lifetime. The surviving spouse should talk with a competent estate planning professional as soon as possible following the death of the deceased spouse because there are deadlines to make the portability election (typically 9 months from the death of the first spouse).
- Make any disclaimers as appropriate. Although most of us wouldn’t intentionally pass up our inheritance, there are many, who for various reasons choose to do so. A surviving spouse for example, particularly one who is well-off or has significant assets, may decide to disclaim a certain portion of the assets that would otherwise transfer to them from the deceased spouse as a way to mitigate the estate tax liability that might confront the surviving spouse upon their death. Like the portability election, there are deadlines to make disclaimers (no later than 9 months following the death of the deceased spouse).
- Revise your estate plan as needed. If you and your spouse had an estate plan before his/her death, the chances are likely that some updates will need to be made now that it’s just the surviving spouse. If no estate plan was created before the death of the deceased spouse, it is critical that the surviving spouse meet with a competent estate planning professional to setup an estate plan because, unless the surviving spouse re-marries, there is no way to take advantage of the unlimited marital deduction (under estate tax law, a spouse can give un unlimited amount to their spouse as a deduction against any estate tax that would otherwise be due). In reality, a lot of the nuts and bolts of estate planning occurs once it’s just the surviving spouse because now we’re inevitably looking for the most efficient way to transfer the assets to the next generation.
- Revise Beneficiary Designations. If the surviving spouse receives a retirement account from the deceased spouse such as an IRA, the surviving spouse can elect to rollover that account to an IRA in their own name. The surviving spouse should counsel with their attorney and tax professional regarding the best manner to receive the retirement account from the deceased spouse, but regardless of which manner is preferable, the surviving spouse should revise/update beneficiary designations on such accounts.
It can be a very stressful and sad time when someone has recently lost their spouse, and unfortunately, it’s not a good time to put your head in the sand when it comes to these matters. If you would like to schedule a consult to discuss these matters, please contact our office at 602-761-9798.