Is there a potential beneficiary lottery in your estate planning?

Oct 16, 2018
Senior couple planning retirement

You and your spouse have been putting it off but you decide it’s finally time to get your wills and estate planning in order.

As a first step, you need to consider your assets and how they will be distributed after you pass away.

Do you both have the same distribution intentions and objectives when the first of you dies and on the death of the second? If you don’t, could that cause any issues or concerns? Consider, for example:

  • What if one or both of you have children from a previous relationship and want some or all your assets to benefit them?
  • What if only one of you would like to make a gift to charity or to one or more individuals?
  • What if you are leaving all your assets to each other, but each have different distribution intentions if you are the second to die?

Depending on the ownership of your assets and how you structure the distribution of assets in your wills and beneficiary designations, it is possible that the ultimate beneficiaries of your assets, as well as the amounts that the beneficiaries receive, may depend entirely on the order of your deaths. This is sometimes known as a “beneficiary lottery.” In some cases, one spouse’s beneficiaries could receive either all or none of the couple’s combined assets, depending entirely on which spouse is the second to die.

If such an arbitrary result is a concern, some possible ways to prevent a beneficiary lottery issue include:

Informal agreement

You and your spouse could formulate a plan of distribution for your assets among all your beneficiaries that meets the objectives of both of you, and would be reflected in each of your wills and beneficiary designations. For example, if you leave all your assets to each other and distribute your assets among the beneficiaries of both of you in the same way on the death of the second of you, your beneficiaries would inherit the same amounts, regardless of the order of your deaths.

With an informal arrangement, however, it is possible that the surviving spouse might change his or her planning in the future in a way that results in intended beneficiaries of the first of you to die not benefiting as intended.

Spousal agreement and/or mutual wills

For greater certainty, you and your spouse could prepare a spousal agreement in which you each commit to your agreed plan of distribution on death. As part of this, you could also each agree to prepare mutual wills to distribute some or all of your assets based on your agreement.

Spousal trust

Rather than leaving your assets to your spouse directly, a spousal trust would enable you to provide for your spouse during his or her lifetime while also ensuring your assets will ultimately pass to your intended beneficiaries after your spouse dies.

Life insurance

Life insurance could be used to compensate beneficiaries for assets you are leaving to your spouse or others.

Talk to your Assante financial advisor and legal advisor to develop an estate plan that works for you.

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