Save your surviving spouse the extra grief

Dear Jonathan: My wife and I know the importance of each of us having a durable power of attorney for health care, so each of us has one. However, we own all of our assets jointly, so we know we don’t have a probate problem and we really don’t see the need to have a will, a trust, or even a durable power of attorney for financial matters. Do you agree?

Jonathan Says: No. Let’s take a look at why a will and trust are important. First of all, you are partially correct when you say that you don’t have a “probate problem” because you and your wife own your assets jointly. This is partially correct because it is only correct upon the death of the first one of you to die. At the first spouse’s death, all of your assets, because they are jointly owned, will indeed avoid probate and will be owned outright by the surviving spouse as the surviving joint owner.

Consequently, in that instance, having a will and trust would have done nothing for you in terms of probate avoidance.

The problem, however, is that if the two of you die in a common accident, or if the two of you die within a short period of time of each other, then you will have a “probate problem” because a probate will be required of the estate of the second one of you to die. Further, if that spouse did not have a will, then that spouse will be deemed to have died intestate and once probate is completed, those assets will be distributed according to state law and not to the beneficiaries of that spouse’s choosing.

To avoid the situation mentioned above, you should each prepare wills in conjunction with a trust. Although any assets either one of you own in your own name will not avoid probate at death, having a will allows you to indicate who is to receive those assets upon the completion of probate and if you have prepared a trust, you would typically name the trust as the beneficiary of those assets.

This type of will is known as a “pour over will” because it distributes or “pours over” the assets to the trust upon the completion of probate. If you die without a will, you will be deemed to have died “intestate” and upon the completion of probate those assets will pass according to state law and not the beneficiary of your choosing.

If you want to avoid the possibility of probate altogether, then you should create a trust and retitle your jointly titled assets to the trust while you are alive. By doing this, it does not matter which one of you dies first, whether you die in a common accident or whether you die within a short period of time of each other, because probate will not be required in any of those events.

Having a durable power of attorney for financial matters is also important because a spouse cannot automatically act for a disabled spouse just because they are married, even for certain jointly titled assets such as real estate. For instance, if you want to transfer jointly titled real estate to your trust, then each of you would need to sign that deed. If one of you is disabled and is unable to sign the deed, and a durable power of attorney for financial matters is not in place, then that deed cannot be signed on behalf of the disabled spouse without first having a guardian of property or conservator appointed on his or her behalf, which requires a court proceeding.

There are other instances where a disabled spouse’s authority will be required, such as changing the beneficiary on the disabled spouse’s life insurance policy, as one example.

I suggest that you meet with an estate planning attorney to further discuss how having wills, trusts and durable power of attorneys for financial matters can benefit you and your wife, and can further explain why those documents should be part of your overall estate plan.

Good luck.

Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, P.C. in Grand Rapids, Mich.

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