No aspect of estate planning brings out as much emotional decision-making as the division of assets. Many people think, “I love you”, so I will leave you everything. In order to understand why “I love you” wills are, contrary to their name and not the most caring of estate planning gestures, it is important to understand the risks associated with these overly simplistic estate planning documents.
Simply put, an “I love you” will is a common name for a will in which the maker leaves all of his or her assets outright to his or her surviving spouse. Many people consider this approach because they think that leaving assets in trust shows they don’t trust their spouse. They may also think that because their estate is not of sufficient size to incur federal estate tax, that they are somehow protected from having their assets fall into the wrong hands. Sadly, many people also think that a will can be used to avoid probate. Unfortunately, none of these things are true.
Why “I love you” wills are not effective
What if you want to make sure your spouse, Jane, gets access to your wealth upon your death. You go to your general practice attorney who drafts a 3 page “I love you” will for the benefit of Jane. Here are some of the issues that can occur:
In order to receive the assets, Jane will have to go to the probate court to validate the will. This can take significant time — typically at least 9 months — and incur substantial expense. Moreover, the process is part of the public record; so, everyone can now see what Jane has inherited.
- Because Jane receives the assets outright, Jane’s own estate plan will eventually control the distribution of whatever assets are left at her death. Whatever verbal understandings you and Jane may have had are now meaningless because Jane can alter her estate plan at any time. Consequently, your assets may end up being spent in a manner contrary to your wishes.
- You could inadvertently disinherit your children because your assets now become Jane’s assets for her to leave however she wants. For example, Jane could remarried and give her assets to her new child. Even if she does not remarry, she might decide to give the assets to her lover or a charity that you don’t like. .
- Basic planning with outright inheritance sets your heirs up for asset protection issues. Once your assets are owned outright by your beneficiaries through a direct inheritance, those assets can be seized by creditors, divorcing spouses, or lost in bankruptcy. Even if your estate is below the exemption for the death tax, predatory creditors and lawsuits could still spell trouble.
- Even simple wills must go through probate. Surviving spouses do not receive an exemption from probate. this can become a problem especially if you had hoped to keep the details of the will private. Trusts, however, don’t need to go through probate and they can be kept out of the public eye.
- An “I love you” will does not protect against guardianship or conservatorship or court involvement for you or for your beneficiaries. For example, if you leave all of your assets to Jane and she develops dementia, her entire estate — her assets plus the inheritance she received from you — could be under the control of a guardianship or conservatorship court.
- Finally, basic plans pile more assets into the survivors estate. Although portability between spouses can help, it isn’t available for non-spouse beneficiaries.
Benefits of lifetime beneficiary directed trusts
Comprehensive, trust-based estate planning with lifetime beneficiary trusts is a better option than outright inheritance for surviving spouses, children, grandchildren, or other beneficiaries. If you leave your assets in lifetime beneficiary trusts, you retain control over where assets end up in the long run. Moreover, beneficiaries receive asset protection features that can keep wealth safe from courts, creditors, and divorcing spouses and your private affairs remain out of public record. You can also take advantage of more sophisticated tax planning than you can with a basic will or trust with outright distributions.
So, when providing for your loved ones, make sure that what you worked for all your life is well protected. See a qualified estate planning attorney and sleep soundly knowing that you have done everything possible for your family. Isn’t that the best way to truly say “I love you”?