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Can a Client Exclude His/Her Spouse from the Estate Plan? Yes and No – It’s a Little Complicated Part 1
Posted by Martin Heller Potempa & Sheppard, PLLC on September 10, 2021
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This is the first blog of a two-parter that covers the question, “Can a spouse exclude the other spouse in the inheritance and estate plan?” Most couples create an estate plan in their first marriage that leaves everything to the surviving spouse at the first death. Then, later at the second death, the family wealth passes to the children.
But, when a couple is in a “second marriage” (in this context, a “second marriage” is any marriage that is not a first marriage), it sometimes comes up that the couple wants to leave his/her separate assets to his/her respective children, and not the spouse. This isn’t one couple being nasty to the other. Many times, each of the couple brings their own wealth to the marriage and at death, wants his/her wealth to go to the children, not the spouse.
Can the client do this? To a large extent, yes. But to a smaller extent, no. The answer to the question begins, as many of the questions posed in this series, with how the client’s assets pass at death. Let’s look at the four different ways assets pass at death from this disinheritance aspect.
1. Beneficiary Designations
The client does not have to name the spouse as the beneficiary of the asset, such as life insurance or a retirement account. There are two ways this can occur.
The beneficiary designation was set before the client married their spouse. In this situation, the client is free to leave the beneficiary designation as it is. The client is not required to change the beneficiary from the existing person to the spouse. Additionally, the spouse does not have to consent to keep the beneficiary designation as it is. In summary:The client can disinherit the spouse from the beneficiary designated asset when the beneficiary designation is set before the marriage. The client does not need the spouse’s permission to keep the beneficiary designation as it is.
The beneficiary designation is set after the client married their spouse. The client can name a beneficiary other than the spouse. But in some instances, the client may only be allowed to name someone other than the spouse as the beneficiary if the spouse gives permission. Usually, the spouse has to sign a form provided by the insurance company or financial organization acknowledging the different beneficiary and giving their consent. This is for both situations when (i) the client has an existing asset, and (ii) acquires a new beneficiary designation asset during the marriage. In summary:As above, the client can disinherit the spouse from the beneficiary designation asset, but may need the spouse’s permission to do so.
2. Jointly Owned Assets with Right of Survivorship
Most assets owned by spouses together are referred to as being owned as Tenants by the Entireties (“TBE”). With this type of ownership, a right of survivorship is created. This means that at the first death, the survivor automatically owns the asset. For example, if the client and spouse own a house together as TBE, the survivor automatically owns the house at the first death. The will of the first to die has no control or authority over the situation. The first one dies, then the survivor owns it.
Thus, the only way to disinherit the spouse from receiving an asset owned as TBE is for the client to break the TBE ownership. Breaking the TBE ownership removes the right of survivorship condition. Using the house example from above, the client could try to break the TBE on the house by creating a new deed showing that the client and the spouse own the house as “Tenants in Common,” which does not have an embedded right of survivorship.
Can the client do this? Generally not. In most situations, the client cannot on his/her own break a TBE situation. The client needs the spouse’s permission to take away his/her right of survivorship that previously existed. In summary:The client cannot disinherit the spouse from TBE assets unless the spouse allows for the change in ownership away from TBE to some other type of ownership.
3. Assets Owned by a Trust
Using a trust is probably the strongest way to pass assets to people other than the spouse, without requiring the spouse’s permission. Many clients in second marriages use trusts to protect the assets and control the distribution to the children, rather than to the spouse. There is no law that requires the client’s trust to include the spouse as a beneficiary. For the trust to control the distribution of an asset, the asset must be titled into the trust. For instance, with real property, a deed (most likely a quitclaim deed) must be filed showing the client transferred the property into the trust. In summary:The client does not have to include the spouse as a beneficiary of a trust. But, the asset must first be transferred into the trust before the client’s death.
Learn More About Estate Planning
There are many considerations to make for those who want to keep their spouse out of their estate plan. Fortunately, the estate planning lawyers at Martin Heller Potempa & Sheppard, PLLC are here to tell you everything you need to know. Check back in next week for part two of our series, where we address disinheriting a spouse from a will.
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