Inheritance Rights of Spouses: Protecting Your Legacy

Why Inheritance Rights of Spouses Matter

Creating a will can be mentally and emotionally taxing. Legal nuances can be difficult to understand, and imagining your family’s future once you’re gone can be worrisome. To make this process easier, many people choose to name their spouse as their sole beneficiary. In theory, this decision would allow the spouse to live comfortably after their partner has passed, give the spouse the ability to change asset allocation if their circumstances change and allow the assets to be passed down to the couple’s children or agreed-upon beneficiaries.

While this might seem like an easier solution to the more complex will-writing options, the inheritance rights of your spouse might spur long-term disadvantages for future beneficiaries.

Potential Risks of Leaving Assets Directly to a Spouse

Assets Diverted to New Beneficiaries

While you and your spouse may have agreed to give all remaining assets to your children upon your spouse’s passing, life can often get in the way. For example, your spouse might remarry. As your surviving spouse, they have the right to name their new spouse as the beneficiary of the assets. Then, when your spouse dies, their new partner can leave the assets to their children – leaving no assets to yours.

 Lack of Financial Restrictions

Another common pitfall of leaving all assets to your spouse is a lack of restriction around asset use. While you’ve left your assets to your spouse to help ensure your family can live comfortably for years to come, your spouse may not be as financially savvy as you – leading your assets to diminish far faster than intended due to poor financial decisions or investments.

Heirs Ill-Equipped to Handle Inheritance

Furthermore, if all goes as intended and your surviving spouse passes down the assets to your children, your children may not have the financial knowledge to fully capitalize on the inheritance. Or worse, they may make financial choices that waste the assets you had hoped would contribute to a fulfilling life.

Using Trusts to Help Protect Assets and Heirs

A better solution to naming your spouse as your only beneficiary may be to leave all assets to a trust. Under the law, a trust is the same as a person. It can own assets, have debts and financial obligations, and so on.

Customizing Trust Distributions

A trust can give certain inheritance rights to your spouse based on your specific instructions. For instance, depending on the structure of the trust, your spouse can take all the money they need, whenever they need it. Or, you can set limitations to help ensure the money goes toward their best interests. You can set rules stating:

• Timing (How Soon)
  • Delay access to the money for a certain period.
  • Spread distributions over time, helping ensure assets last longer.
• Amount (How Much) of the trust’s principal or both.
  • Allow access to only the interest generated by the trust.
  • Permit access to a specific percentage of the principal or both interest and principal.
• Frequency (How Often)
  • Distribute funds upon request, offering flexibility.
  • Release money on a set schedule, such as monthly or annually, similar to an allowance.
• Purpose (How So)
  • Specify allowable uses, such as paying for education or healthcare.
  • Set conditions for access, like proving financial need or meeting certain milestones.

Naming Your Spouse as Trustee

You can also appoint your spouse as a trustee, allowing them to operate and access the trust at any point during their lifetime. This gives your spouse the same access to your assets as if you left it to them directly. However, your spouse doesn’t own these assets, so when they die, your assets will continue to go to the beneficiaries of your choosing instead of being passed to the family of your spouse’s potential second marriage.

Long-Term Advantages of Strategic Estate Planning

While leaving your spouse your assets may seem like the best idea to benefit your family, it can come with significant disadvantages that can be avoided by engaging different options in your will. Speak with your financial advisor to see how estate planning fits into your overall financial plan for what may be best for you and your family, and speak with an estate planning attorney prior to making any major decisions.