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What Property Distributes to a Surviving Spouse Upon Death?

by Webmaster Admin on March 1st, 2024

Many people believe that all property owned by a married couple automatically distributes to their spouse upon death, regardless of how property is legally titled or whether the couple have any estate planning documents in force. 

While in specific cases this type of distribution would occur, in many instances, this may not be the case. More specifically, while property owned between spouses titled as “Joint Tenants with Right of Survivorship” and “Tenancy by the Entirety” distribute to surviving joint owners, there are many types of financial assets which do not automatically distribute to a surviving spouse at death by operation of law.  

For example, tax-deferred retirement plan accounts, including IRAs, 401(k)s, and other types of employer provided retirement plan accounts, along with proceeds from life insurance policies and annuity contracts, distribute according to the beneficiary designation on file with retirement plan administrators and life insurance companies. As a result, if a spouse is not designated as the beneficiary, he or she may not receive any of these financial assets, (which property often collectively comprises over 50% of a client’s net worth), even if the deceased spouse intended that their surviving spouse receive all property owned upon death of the first spouse.

Therefore, it is vitally important to understand that establishing a written and current Last Will and Testament, along with a Revocable Living Trust, with terms and provisions that distribute all individually owned property at death to a surviving spouse does not override existing beneficiary designations on file with retirement plan custodians or life insurance companies.

In addition, if an individual dies with a surviving spouse and one or more surviving children, the surviving spouse may only receive a specific dollar amount plus only 50 percent of the deceased spouse’s assets, with the balance of 50% distributed outright to the deceased spouse’s children. This is often a surprise to couples without estate plans who believe and intend that everything they own automatically passes to the surviving spouse upon death of the first spouse.

To demonstrate issues relevant to married couples which can arise upon the death of a spouse, we will explore some common scenarios:

Mary and John got married ten years ago. Mary had a daughter, Sally from a prior marriage, and John had no children. Mary and John both believed that everything they owned would distribute to the surviving spouse and did not have any estate planning legal documents prepared. Mary recently died, and her husband John and daughter Sally both survived her. 

Mary and John had a joint bank account to may their recurring monthly expenses, but Mary also had a number of bank and brokerage accounts titled in just her name alone.  

If Mary had established a comprehensive estate plan, clearly stating her intentions and desires regarding the distribution of her individuality owned property upon her demise, then she could have made certain that her separate property would have distributed to her husband John upon her passing. However, without an estate plan, Mary’s individually owned assets distributed under the intestate statute, which typically would divide her individually owned property between her husband, John and daughter, Sally.

This unintended result could have been avoided by either adding John as a co-owner to Mary’s accounts or by creating an estate plan which provided that Mary desired her husband John would receive all of her property upon her passing.

In addition, Mary owned her own home before she married John, and the home remained titled in her name alone during their marriage. After they married, John moved into the home with Mary, and they lived there together until Mary’s death.

Because Mary owned the property in her name alone, and the couple never took the time to re-title or transfer the home into joint ownership, the home is Mary’s separate property and may be divided between her husband, John and daughter, Sally upon Mary’s death. As a result, as a beneficiary Mary’s estate under intestate law, Sally may be able to require her step-father John to pay rent if he desires to continue living in Mary’s home, force a sale of the home, or evict John from the home. Each of these scenarios may occur due to the absence of Mary re-titling her home into joint names with her spouse or failing to have an estate plan, which could have specifically devised Mary’s home to her spouse John upon her demise. 

If Mary wanted her husband John to be able to live in the home for as long as he lived, she could have established a Testamentary Trust under her estate plan, wherein John was provided with a Life Estate in Mary’s home. Thereafter, upon John’s subsequent death, Mary’s home, or proceeds from the sale of her home, could have distributed to her daughter, Sally.  In essence, Mary’s wishes, with respect to the distribution of her home, could have been accomplished with the creation and execution of proper trust and estate planning legal documents.

As we can see from these examples, even if you believe that your spouse will receive everything you own upon your death, it is important to ensure that the title of your assets, and your estate planning legal documents, clearly reflect your intent and wishes regarding the distribution of your property in the event of your death. 

In a nutshell, having a comprehensive estate plan can avoid unintended consequences and unpleasant surprises for your surviving spouse. 

An experienced estate planning attorney will be able to advise you regarding titling your assets and preparing the appropriate estate planning legal documents necessary to achieve your desired goals and objectives.

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