Sounds silly, doesn’t it? Well, today’s biggest estate planning issue is what we call the Beneficiary Lottery. This is the solution that many people default to by trying to avoid conflict or not dealing with estate issues. In a nutshell, when wills are made they are done per individual, not jointly. At any time, either party can change their will without informing the other. In addition to this, when one party has passed the surviving person can make any changes to their will, as they see fit.
In most cases, a married couple leaves all their personal assets to their surviving spouse. If the spouse is deceased, then the assets go to the children. Each spouse typically has a will that mirrors the other’s.
This works perfectly as long as after the first spouse dies, the surviving spouse does not get his/her will changed or remarries. Upon remarriage the previous will is now invalid. It no longer matters that the original intention was for all the money to go to the children. On top of that, the surviving spouse now has the authority to direct the money however they see fit. If issues arose with one child, they can make amendments to their own will, as they deem necessary. It is important to note that, upon death of the first spouse, all assets will go to the surviving spouse. Nothing is directed to the children (unless indicated in the deceased’s will).
This is where the Beneficiary Lottery becomes relevant — Second Marriages with children involved. Here’s the scenario:
Surviving spouses, with children, marry one another. Now a mixed marriage, with step-children, is created. If they use the same will template (i.e. if alive, then leave all assets to spouse; if spouse deceased, then leave all assets to children), then an unintentional disaster can occur. As long as the partner is alive when the first passes, they have no obligation to pass the money onto the deceased partner’s children. If the surviving partner becomes less involved in their step-children’s lives, they can be intentionally left out, with all the money left to the surviving partner’s children. So now the final recipient of the money is no longer based on wishes, it is now a lottery of who dies first.
Is there a solution? Absolutely! A spousal trust can solve these issues. They provide the spouse the opportunity to leave instructions for their assets after they are gone. It makes sense, so why doesn’t everyone do this? Number one, there are costs to set them up. However, the most common reason is due to the awkwardness of the conversation. How do you say to your new spouse “I don’t trust you after I die!”? All emotion aside, it should not be a matter of trust but a matter of protection. In this business we have seen the most well-intentioned estate instructions fail miserably due to improper planning. We are here to speak to you on this. Ask Chelsey, Carlo, Rob or myself about how this could affect your situation. It is always worth a discussion.
