Provisions for Surviving Spouse
In estate planning, a married couple must determine how to allocate the deceased spouse's property if one spouse dies and the other is still living. The deceased spouse's property is defined to include one-half of all joint assets and all of the deceased spouse's separate assets. When designing the estate plan for a married couple, I usually limit the discussion to four options. I will present them here as if I was describing them to a married couple during a meeting.
1. Outright to Spouse + No Portability Election
The first choice indicates that you are not concerned about the survivor of you possibly changing his or her estate plan to exclude your preferred beneficiaries when the survivor dies later. For example, the survivor of you could remarry and give all assets to his or her new spouse instead of your currently agreed-upon beneficiaries. While this result may not be what you intended now, your choice reflects a stronger desire to give the survivor the full discretion to administer and distribute the deceased spouse’s property as he or she sees fit.
Further, the choice to give all property outright to the surviving spouse also indicates that you are not concerned about the estate tax. The current exclusion amount from the federal estate tax is approximately $14 million, which means that most US taxpayers will not pay estate tax when they die.
2. Outright to Spouse + Elect Portability of Unused Exclusion Amount on Form 706
The second choice assumes that you are not concerned about the survivor of you possibly changing his or her estate plan to exclude your preferred beneficiaries when the survivor dies later.
However, the second choice indicates that you are concerned about the potential impact of estate tax laws after the surviving spouse’s death. Although the current exclusion amount from the federal estate tax is approximately $14 million, this number is subject to the political winds of change and may decrease to approximately $8 million in 2026 (unless Congress extends the 2017 tax law changes). Because you already have substantial assets that are likely to appreciate, and because of the political uncertainty regarding estate tax laws, your estate plan integrates a provision directing the survivor of you to make the “portability” election on tax form 706 after the first of you dies. This means that any unused exclusion amount at the deceased spouse’s death is added to the surviving spouse’s exclusion amount at the survivor’s death. For example, if Husband’s estate is $2 million at a time when the exclusion amount is $14 million, the Wife’s exclusion amount at the time of her death will be augmented by the $12 million unused exclusion amount from Husband’s estate. This relatively simple technique has the potential to substantially reduce or eliminate the estate tax due when the surviving spouse dies, even if the surviving spouse’s net worth has appreciated to a much higher number.
3. Establish Decedent's Trust for Spouse + No Portability Election
The third choice indicates that you harbor some reasonable concerns about the survivor of you possibly choosing to exclude your preferred beneficiaries when the survivor dies later. By allocating the deceased spouse’s property to a separate irrevocable trust for benefit of the surviving spouse (aka “Decedent’s Trust”), your estate plan can restrict the survivor’s ability to disrupt your agreed-upon plan for allocation and distribution of inheritance. The levels and types of restrictions are customizable for your situation and, of course, should be reviewed carefully from time to time.
This third choice also indicates that you are not concerned about the estate tax. Therefore, your estate planning documents will not address possible techniques to minimize or eliminate the estate tax upon your death.
4. Establish Decedent's Trust for Spouse + Use Clayton QTIP Election
The fourth choice indicates that you harbor some reasonable concerns about the survivor of you possibly choosing to exclude your preferred beneficiaries when the survivor dies later. This option also establishes a separate irrevocable trust for benefit of the surviving spouse (aka “Decedent’s Trust”).
However, the fourth choice also indicates that you have a concern about the potential impact of estate tax laws after the surviving spouse’s death. Thus, your estate plan will integrate a provision that permits the survivor of you to make the “Clayton QTIP” election on tax form 706 after the first of you dies. This means that any property exceeding the deceased spouse’s exclusion amount can be allocated to yet another separate trust (aka “QTIP” trust) that qualifies for the unlimited marital deduction. The QTIP trust incorporates similar restrictions to the Decedent’s trust. But whether the QTIP trust is needed or not, the integration of QTIP provisions into your estate plan eliminates the possibility of having to pay estate tax immediately after the deceased spouse’s death. And more importantly, the assets of the Decedent's Trust - including appreciation - are fully excluded from estate taxes when the first spouse dies and later when the surviving spouse dies.
Summary
Yes, there are a several more choices for how to allocate the deceased spouse's property when there is a surviving spouse. But I have learned that one of these four options will satisfy the objectives of almost every client that I have ever represented. Because my objective is to simplify complex subject matter for clients rather than dazzling them with my knowledge of marital trust planning, I feel pretty comfortable in summarizing a very confusing topic like I have in this article.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.
1. Outright to Spouse + No Portability Election
The first choice indicates that you are not concerned about the survivor of you possibly changing his or her estate plan to exclude your preferred beneficiaries when the survivor dies later. For example, the survivor of you could remarry and give all assets to his or her new spouse instead of your currently agreed-upon beneficiaries. While this result may not be what you intended now, your choice reflects a stronger desire to give the survivor the full discretion to administer and distribute the deceased spouse’s property as he or she sees fit.
Further, the choice to give all property outright to the surviving spouse also indicates that you are not concerned about the estate tax. The current exclusion amount from the federal estate tax is approximately $14 million, which means that most US taxpayers will not pay estate tax when they die.
2. Outright to Spouse + Elect Portability of Unused Exclusion Amount on Form 706
The second choice assumes that you are not concerned about the survivor of you possibly changing his or her estate plan to exclude your preferred beneficiaries when the survivor dies later.
However, the second choice indicates that you are concerned about the potential impact of estate tax laws after the surviving spouse’s death. Although the current exclusion amount from the federal estate tax is approximately $14 million, this number is subject to the political winds of change and may decrease to approximately $8 million in 2026 (unless Congress extends the 2017 tax law changes). Because you already have substantial assets that are likely to appreciate, and because of the political uncertainty regarding estate tax laws, your estate plan integrates a provision directing the survivor of you to make the “portability” election on tax form 706 after the first of you dies. This means that any unused exclusion amount at the deceased spouse’s death is added to the surviving spouse’s exclusion amount at the survivor’s death. For example, if Husband’s estate is $2 million at a time when the exclusion amount is $14 million, the Wife’s exclusion amount at the time of her death will be augmented by the $12 million unused exclusion amount from Husband’s estate. This relatively simple technique has the potential to substantially reduce or eliminate the estate tax due when the surviving spouse dies, even if the surviving spouse’s net worth has appreciated to a much higher number.
3. Establish Decedent's Trust for Spouse + No Portability Election
The third choice indicates that you harbor some reasonable concerns about the survivor of you possibly choosing to exclude your preferred beneficiaries when the survivor dies later. By allocating the deceased spouse’s property to a separate irrevocable trust for benefit of the surviving spouse (aka “Decedent’s Trust”), your estate plan can restrict the survivor’s ability to disrupt your agreed-upon plan for allocation and distribution of inheritance. The levels and types of restrictions are customizable for your situation and, of course, should be reviewed carefully from time to time.
This third choice also indicates that you are not concerned about the estate tax. Therefore, your estate planning documents will not address possible techniques to minimize or eliminate the estate tax upon your death.
4. Establish Decedent's Trust for Spouse + Use Clayton QTIP Election
The fourth choice indicates that you harbor some reasonable concerns about the survivor of you possibly choosing to exclude your preferred beneficiaries when the survivor dies later. This option also establishes a separate irrevocable trust for benefit of the surviving spouse (aka “Decedent’s Trust”).
However, the fourth choice also indicates that you have a concern about the potential impact of estate tax laws after the surviving spouse’s death. Thus, your estate plan will integrate a provision that permits the survivor of you to make the “Clayton QTIP” election on tax form 706 after the first of you dies. This means that any property exceeding the deceased spouse’s exclusion amount can be allocated to yet another separate trust (aka “QTIP” trust) that qualifies for the unlimited marital deduction. The QTIP trust incorporates similar restrictions to the Decedent’s trust. But whether the QTIP trust is needed or not, the integration of QTIP provisions into your estate plan eliminates the possibility of having to pay estate tax immediately after the deceased spouse’s death. And more importantly, the assets of the Decedent's Trust - including appreciation - are fully excluded from estate taxes when the first spouse dies and later when the surviving spouse dies.
Summary
Yes, there are a several more choices for how to allocate the deceased spouse's property when there is a surviving spouse. But I have learned that one of these four options will satisfy the objectives of almost every client that I have ever represented. Because my objective is to simplify complex subject matter for clients rather than dazzling them with my knowledge of marital trust planning, I feel pretty comfortable in summarizing a very confusing topic like I have in this article.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.