Estate Planning for Couples Without Children
When people, married or single, have children, it is generally expected that the children with be the ultimate heirs of the estate of the parents on the death of the second spouse to pass away. It is also anticipated that absent certain situations, such as the children being minors, disabled or financially irresponsible, that the children will be involved to some extent as a fiduciary in the administration of the parents’ estate and other financial affairs. When couples have no children or the children are not intended to inherit, planning might be more complicated, but just as critical. There are a number of factors that the couple with no children need to consider as they engage in estate planning.
Having the right tools in place to help fiduciaries handle their affairs.
If the proper documents are not in place, then the couple relinquishes control of who handles and manages their affairs and how those affairs are handled.
- Last Will and Testament — In the event of death, the last will and testament depicts the decedent’s wishes regarding the disposition of the decedent’s assets and names a primary and alternate personal representative to handle the administration of the estate.
- Financial Power of Attorney — In this document, the principal appoints a primary and alternate agent to handle financial matters on his or her behalf. The power of attorney is effective during the lifetime of the principal when he or she is unable to handle those matters personally.
- Advance “Medical” Directive — In this document, the declarant appoints a primary and alternate agent to handle medical decisions on behalf of the declarant when he or she is unable to handle those decisions personally.
Who inherits on the death of the surviving spouse?
It is common for the last will and testament of a married man or woman to provide that on his or her death, the net estate is to be distributed to his or her spouse. Generally, the couple wants to provide for each other and to ensure that the surviving spouse has sufficient assets to live on before leaving assets to their descendants. When the couple has no children or no children intended to inherit it is important for the couple to consider and decide what should happen to any remaining assets after the death of the surviving spouse.
If the couple fails to discuss, decide and establish testamentary documents that adequately distribute their remaining assets after the death of the surviving spouse, then the intestacy laws will dictate who the heirs of the estate of the surviving spouse should be. The distribution pursuant to the intestacy laws could potentially be in line with the intentions of the couple. However, that is not typical because assets that are not jointly owned by the couple will not fully pass to the surviving spouse, and balance of the assets will go to the deceased spouse’s children, if any, or parents. Secondly, that some couples would like their remaining estate after the death of the surviving spouse to benefit both sides of their family, but under the intestacy laws, the extended family members of the first spouse to die would be disinherited. Additionally, the law provides certain vehicles or tools to protect assets for underage or disabled heirs. However, such vehicles are limited and may not adequately comply with your intentions.
When all the assets of the first spouse to die are bequeathed to the surviving spouse, outright and free of trust, the last will and testament of the surviving spouse controls the distribution of the assets at the death of the surviving spouse. A last will and testament is revocable and amendable, so the surviving spouse has the final say regarding who inherits the remaining assets of the couple. Again, this might be acceptable to the first spouse to die, but it should be considered and discussed.
Some couples who have no children or children intended to inherit may decide to bequeath assets to extended family members, such as nieces, nephews, siblings and parents, close friends, or to charitable organizations. Certain beneficiaries, such as nieces, nephews, and close friends, will be subject to Maryland’s inheritance tax at a rate of 10% of the value of what they receive (on both assets they receive under the Last Will and pursuant to beneficiary designations), unless the Last Will provides that he estate should pay this tax.
Who should be appointed in a fiduciary capacity?
Appointing an agent under a power of attorney or a medical directive is critical because if an agent is not appointed, the court will have to be petitioned to appoint a guardian to handle financial matters and medical decisions for a deemed disabled person. Typically, couples appoint each other as their primary agent, but it is also important to appoint an alternate agent who will serve if your primary agent is unable to serve. Couples without children that can serve as an alternate agent should consider appointing others that they have an established relationship with that are trustworthy and have the experience and capability of handling the responsibilities of being an agent under a financial power of attorney and/or a medical directive. They could appoint close friends or extended family members, or on the financial power of attorney, some professionals (attorneys, CPAs, or financial advisors) may be willing to serve as an alternate agent.
Nominating a primary and an alternate personal representative to handle the administration of an estate is also critical. If a personal representative (“PR”) is not adequately nominated or there is no nominated PR that is willing and able to serve, then the statute dictates who has the priority to serve as PR. It is common for couples to nominate each other as their primary personal representative. Couples without children that can serve as an alternate PR should consider appointing others that they have an established relationship with who are trustworthy and have the experience and capability of handling the administration of an estate. They could appoint close friends or extended family members, and some professionals (attorneys, CPAs, or financial advisors) may be willing to serve as an alternate personal representative. Additionally, the trust department of some financial institutions may be willing to serve as a corporate PR.
Asset holdings and how they transfer should be considered.
When assets transfer by beneficiary designation, such as life insurance and retirement benefits, it is important to designate primary and alternate beneficiaries. Couples typically designate each other as the primary beneficiaries of their life insurance policies and retirement accounts. To the extent beneficiaries are not designated or a primary beneficiary fails to survive the account holder or the insured and no alternate was designated, then the death benefits or the retirement benefits will be paid to the probate estate of the insured or account owner. Paying life insurance benefits to a probate estate subjects the benefits to creditor claims and paying retirement benefits to a probate estate has negative income tax implications. A couple with no children or no children intended to inherit should review their beneficiary designations and consider designating alternate or contingent beneficiaries. Furthermore, as part of their estate plan, they should consider maximizing their bequests by minimizing the income tax implications of retirement benefits. For example, to the extent they have charitable intentions, they could designate a charity as a beneficiary of part or all of a retirement account and give other nontaxable assets to other beneficiaries.
Establishing an estate plan for couples without children or with no children intended to inherit is just as critical as planning for couples with children intended to inherit, and it is equally as important to have competent counsel to draft these important legal documents. Consult with an experienced attorney regarding these matters.