Married Couples: How to Pass Assets to the Surviving Spouse


Hello, this is Richard Morgan at Morgan and DiSalvo. This is part of our Back to the Basis video newsletter series. This question is for married couples and how to pass the assets at the first spouse’s death when they want to pass those assets primarily to the surviving spouse. How do we do that?

There are two options. Option number one, we keep it simple. We just pass the assets to the surviving spouse outright. They just own it all outright in their own name. Option number two is you pass those assets to the surviving spouse at least partially in the form of a trust. Now we can make that trust pretty flexible where the surviving spouse is the trustee, the one in control, and either the sole beneficiary or the primary beneficiary with the kids secondary. So we can make it where it’s legally effective, practically invisible. So why would you choose outright simple? So that’s kind of the default, I want it to be simple.

So why would you go more complicated and pass assets at least partially in trust to your spouse? There are three possible benefits. Benefit number one, tax benefits. It used to be before 2013 that was the primary driver for doing these trusts. That is no longer the case under the current tax law for the vast majority of the population. For the high wealth or ultra high net worth, it absolutely still is a reason to do it. But for most people, it is not. Number two is asset protection. As you may have seen in another one of our newsletters, there’s third-party asset protection. The assets we pass to the surviving spouse will be protected from the surviving spouse’s potential future problems. Spouse gets remarried and gets divorced, can’t get in. Personal guarantees, bankruptcy, judgment creditors, nobody gets into at least to those assets.

And the last one is control. The control issue is this, if you give all the assets to the surviving spouse outright, all bets are off as to where those assets go. You hope they end up going to your kids or whoever you want them to go to, like the individuals, like the couple believes they should do right now. But a lot of things can happen. What if that spouse gets remarried, the surviving spouse does, gets remarried to someone and then dies first in that new relationship? Without special planning after they got married, there’s a chance a lot of those assets will end up going to another spouse and then to that spouse’s family.

So when you think about this issue, you need to think about it pretty deeply. Do I want to keep it simple or do I want to get one or more of these other benefits? Tax benefits, asset protection, and control.

Richard Morgan, Morgan and DiSalvo.

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