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BEING MARRIED MAY NOT MEAN WHAT YOU THINK WHEN IT COMES TO YOUR ESTATE

People frequently assume that having a spouse means that your assets will all go to him/her if you die intestate (without a will), and conversely, if you do have a will, you can leave your assets to anyone that you want. Both of these are significant misconceptions. Further, what happens in the event of a divorce, and how does being married impact the taxability of an estate?

Intestate Inheritance Rules Include Children

Under intestacy, your spouse and your children are virtually equal. The spouse gets the first $50,000 of an estate but the rest is divided evenly between the spouse and the children. In some instances, this can be problematic because it includes children who are estranged or otherwise not intended to share in the estate.

If you’re not ready to make a will or trust, the best way to avoid this issue is to list your spouse as the joint owner or beneficiary on all of your accounts and property. The stickiest situation comes when only one spouse’s name is on the deed to the home. The result is often that the home is split between the spouse and the children, which is rarely the intent. If the children do not want to sign over their shares, the property may have to be sold. Further, the children may have creditors, judgments and other issues that complicate the title to the property.

You Cannot Disinherit Your Spouse

New York, like most other states, has a spousal right of election. That means that you cannot simply disinherit your spouse. Even if you make an estate plan that completely cuts out your spouse, he/she can “elect” against it. This means that the spouse can file in court and demand a minimum of one-third of the assets. Most people leave their estates to their spouse anyway. But this can be an issue for people who get married later in life and intend to leave assets to their separate families.

The best way to avoid the spousal right of election is with a prenuptial agreement where both parties specifically agree to forego it. Prenuptial agreements are generally contemplated in the context of divorce, but they can be equally important when it comes to estate planning. People can also consider postnuptial agreements or mutual waivers signed after marriage. It is most advisable for both sides to have the opportunity to consult with their own counsel in the negotiation of such an agreement, to reduce the possibility of a party later arguing that the agreement should not be upheld.

Divorce Nullifies Bequests

In New York State, divorce automatically revokes any bequest to a spouse or appointment of a spouse as a fiduciary. But it’s absolutely worth revisiting your estate plan in the event of a dissolution of marriage. For one thing, the inclusion of in-laws and other members of a spouse’s family are not automatically revoked. Further, you may want to have a look at your contingent beneficiaries and successor fiduciaries. If the spouse is out, who then is in? This is often something people want to change. It is also very important to note that while divorce nullifies bequests and appointments in a will, it does not erase bequests in certain federally governed plans like 401(k)s, so it is very important to review and change all beneficiaries.

Having a Spouse is not an Automatic Double Estate Tax Exemption

People often assume that since two spouses are two people, they should get to pass double what one person is permitted to pass free of estate taxes. But this is not exactly the case. The federal estate tax offers “portability,” meaning that the surviving spouse can make use of the unused estate tax exemption of the first spouse to die. But it is very important that the surviving spouse file a federal estate tax return and elect for portability in the first nine months after the first spouse’s death. Meanwhile, on the state level, New York does not have any such portability election. This is why it is very important to consider the proper estate planning for your situation. There are ways to use trusts and other estate planning tools to maximize estate tax savings in New York and create a situation similar to portability.

This article appeared in the July 15, 2022 edition of the Senior Gazette.

This is not intended to be legal advice.  You should contact an attorney for advice regarding your specific situation.  

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Michael Wagner is a Partner concentrating on elder law and estate planning, wills and trusts.  He conducts several Estate Planning Seminars and Webinars throughout the year.
He can be reached by phone at 845-764-9656 and by email.
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