Couples looking to protect their assets for the surviving spouse may be wise to work with an estate planning attorney. While some may feel they are aptly covered simply by the fact that they are married or have a written document in place the fact is that any property held in one spouse’s name alone often isn’t enough. If the deceased spouse owned property in his or her own name, his or her will bequeathed it to his or her trust, but such post-death funding of a trust requires a probate proceeding.
However, it is possible to avoid probate court. This can be accomplished by each spouse establishing a revocable trust and transferring individually-held property to the trust. It’s a good idea to equally divide marital property into his and her trusts. Doing so can help avoid possible challenges to transfers on grounds such as those concerning the non-signing spouse’s dower rights, the non-signing spouse possessing the transferred property or an interest in it, or in a community property state, the non-signing spouse having a community property interest in the transferred property.
So what sorts of assets should be placed in revocable trusts? Bank accounts, mutual fund accounts, and brokerage accounts, to name a few. Others include certificated stocks or bonds, which may require the services of a brokerage firm or the issuing company’s treasury or stock agent.
Closely-held business interests should also be transferred to revocable trusts. This will require help from counsel yet may prove beneficial as dividing a closely-held business interest between two spouses’ trusts can save considerable estate tax.
Couples may also want to transfer real property, including their primary residence, to revocable trusts, which can be accomplished with quit claim deeds.
So what assets may best be left out of revocable trusts? Life insurance policies and retirement plan accounts make the list. Proceeds from life insurance pass outside of probate and retirement plan account transfers constitute a taxable distribution from the account.
Source: Forbes, “Estate Plan Funding for Spouses,” Stephen J. Dunn, May 27, 2013.