Don't Leave It All to Your Spouse

Most married people write a "simple will," leaving everything to their spouse or to their children if their spouse dies first. Yet this strategy, simple in concept, could lead to unexpected problems for the simple reason that life isn't so simple.

A Simple Will Might Not Protect Your Children

Richard and Ashley have two children. Richard dies, leaving everything to Ashley. Ashley then marries Tom, a widower with three children of his own. Then Ashley dies, leaving everything to Tom. When Tom dies, he leaves everything to his three kids. The result: Richard's money goes to Tom's kids; Richard's kids get nothing. Got that?

This is an excellent example of the problems created by a simple will. A better solution is for Richard to leave his assets to a trust, not to Ashley. Under the law, a trust is the same as a person. It can own assets, have debts and financial obligations, and so on. But a trust is a pretty dumb person, so it needs someone to tell it what it is supposed to do, and it needs someone to help it do these things.

For example, Richard can create a trust and give it all his assets upon his death. He can instruct the trust to give Ashley all the money she needs, whenever she needs it. Or, he can place limits on how much or how often she is allowed to receive money. It's his trust, so he can set the rules any way he wants.

Since the trust doesn't get Richard's assets until he dies, someone other than Richard must be appointed to operate the trust (in conformance with Richard's rules). Who should Richard appoint as trustee?

In this case, his wife Ashley. After all, the money is for her benefit, so why force her to turn to a third person every time she needs money? The trust in this example is intended to protect Richard's kids in case Ashley dies, not to protect Ashley from herself, so naming Ashley as trustee is a fine idea. (If we were concerned about Ashley's ability to handle the money, we'd name someone else to serve as trustee or co-trustee. Richard could name another family member, a friend, even a lawyer, banker, or financial advisor.)

Thus, Ashley has access to the trust's assets during her lifetime — the same access, in fact, as though Richard had left it all to her directly. But Ashley doesn't "own" the assets, so in the event of her death, the money stays in the trust for the benefit of their kids; Ashley can't give the money to anyone else when she dies, and Tom can't make a claim on it. Thus, Richard has succeeded in protecting his kids without hurting Ashley. Since we don't know who will die first, Ashley would write a will with the same provisions in case she dies first and Richard remarries.

A Simple Will Might Not Protect Heirs Who Cannot Handle Money

Do you really want to leave all your money to your 18-year-old? Images of sports cars and weeks at the beach flash through my mind, and I don't see a textbook anywhere.

Do you really want to leave your money to your relative who has a drug or alcohol problem, who gambles, who can't hold a job, or who is abusive? Or to that relative who never seems to have any money, is always bouncing checks, living paycheck to paycheck, and is constantly borrowing money from family and friends?

Do you really want to leave your money to these people?

Of course you do, because you love them. But you also realize that giving money to someone who can't handle it is like giving a drink to a drunk — you're certainly not doing anybody any favors.

This is perhaps the most fatal flaw of a simple will: Named heirs will receive your assets without restriction. And often, restrictions are exactly what are needed.

In such situations, a better idea may be to leave your money to a trust. You can set rules stating:

  • How soon. You can delay availability of money for a certain period of time or until heirs reach certain ages; you can even spread out distributions over time.
  • How much. You can grant heirs access to interest only, to a certain percentage of the trust's principal, to both, or to any combination.
  • How often. You can state whether money is to be distributed whenever the person requests it, or you can release assets on a schedule, like an allowance.
  • How so. You can require that your money be made available only for certain purposes, such as paying for college, or only under certain conditions, such as a medical need.

As you can see, "simple" wills are not always best, because life is not always so simple. Talk with an attorney who specializes in wills and trusts before you write your will.

Neither Edelman Financial Services, LLC nor its affiliates offer tax or legal advice. The use of trusts involves a complex web of tax rules and regulations. Consider enlisting the counsel of an estate planning professional and your legal and tax advisors prior to implementing such sophisticated strategies.

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