5 Common Estate Planning Mistakes After Getting Married
This is the third in a series of estate planning articles from EZLaw™. EZLaw™ makes it easy to create a Last Will & Testament, Power of Attorney, or Living Will document, with the guidance of an attorney at a very affordable cost.
After the wedding is over and the honeymoon is just a memory, many newlyweds find that it takes six or nine months to settle into their new lives. But there’s still a lot of work to be done after the wedding – everything from legally changing her last name or opening a joint checking account to making estate plans as a couple.
Today, let’s look at the five most common estate-planning mistakes that couples make after they get married.
5. Not considering whether to update healthcare power of attorney. Your healthcare power of attorney document allows you to name an attorney-in-fact (also known as a healthcare proxy or healthcare surrogate) to make medical decisions on your behalf if you’re incapacitated. Although it’s not a requirement, many people will name their spouse as their attorney in fact.
You and your spouse should sit down to discuss whether you want to name one another as healthcare surrogates. But recognize that in some cases, there might be someone who’s better equipped for the job. Suppose, for example, that English isn’t your spouse’s first language. Would he or she feel comfortable communicating with doctors, health insurance companies and other medical providers, even if a translator were unavailable? Or suppose you have an adult sibling who works in the medical profession and might be more comfortable in the role. Choosing a proxy to be your healthcare power of attorney isn’t a popularity contest, and you and your spouse need to decide if you’re the right people for the job.
4. Forgetting to update beneficiary designations on life insurance policies, annuities and retirement accounts. One advantage of financial planning tools such as life insurance policies is that, after your death, the assets transfer outside of the probate process. If money is tight, then speed is of the essence. After you get married, check to see whom you’ve designated as the beneficiary for each IRA, 401(k), annuity and life insurance policy, and update those beneficiary designations in your last will if you’d like your new spouse to receive the assets.
3. Not maximizing the annual tax-free gift limit. Each year, federal laws allow you to give people tax-free gifts of up to $13,000. The tax-free gift laws allow you to reduce the size of your taxable estate—and you get the added benefit of seeing your loved ones enjoy your gift. Married couples get an extra benefit: Both you and your spouse can each give tax-free gifts of up to $13,000 per person. That means if your loved one can each receive up to $26,000 a year in gifts and none of you are taxed on the money.
2. Not taking steps to protect your children from prior relationships. Newlyweds with children from prior marriages may want to consider creating living trust for the benefit of those children. While you are alive, you can be both the trustee (meaning you manage the trust’s assets) and its primary beneficiary (meaning you have access to the assets and can freely use them). After your death, children from an earlier marriage (and others, if you wish) would become the successor beneficiaries.
1. Failing to understand if you live in a community-property state (and planning accordingly). A number of states in the US—including Texas and California—are community property states. This means that if you get divorced, any assets you acquired during your marriage are considered “community property” and will be divided equally. Community property laws also affect your estate plans: If you are a resident of a community property state, your spouse is automatically entitled to half of your community property—even if your estate plans leave fewer assets to your spouse. To avoid any probate delays, it’s critical to know if you live in a community property state and, if so, ensure that your estate plans give your spouse everything to which he or she is entitled.