Avoid Unintentionally Disinheriting Your Spouse in your Wills and Trusts

Many people don’t realize it, but their wills leave nothing outright to their spouse.

Before the current high federal exempt amount was established, a standard will stated that a portion of the estate equal to the federal exempt amount was left in a bypass trust or other trust that benefitted the surviving spouse for life with the remainder going to the children. The rest of the estate would go to the surviving spouse outright.

This provision made a lot of sense when the exempt amount was $1 million or less. But since it was increased to $5 million (indexed for inflation), in many estates the surviving spouse won’t inherit anything. The entire estate is less than the exempt amount, so the entire estate will go into the trust.

A better approach these days is to use a formula. For example, in a $5 million estate, the will might say the bypass trust will receive $2 million or 40% of the estate, whichever is higher (or lower if you prefer), but not to exceed the available federal exempt amount.

Because of the fluctuations in the estate tax, many people put off revising their plans until the law was settled. Their estate plan revisions still are on the backburner, and they don’t realize that their wills effectively disinherit their spouses. If your will was written before most estate were effectively exempted from taxes, have it reviewed or revised in a hurry.

RW February 2015.