Did you now that a Reciprocal Will is sometimes called an “I Love You Will”? This is because each spouse creates a Will that leave everything to the other spouse upon death. If you have an “I Love You Will”, you should know the truth about your Will and what it does and doesn’t do.

What it Does

In comparison to a more complex estate plan, an “I Love You Will” can save you money. With a Reciprocal Will all of your estate holdings will simply pass to your spouse upon your death. At that time your spouse should create a new Will to divide the estate between your children and other beneficiaries.

What it Doesn’t Do

A Reciprocal Will is very basic, so there are several things it cannot do. Is your estate currently worth more than one million dollars? Before you answer, don’t forget to count the death benefit of any life insurance that you own, the value of your retirement accounts, and the value of your home, all of which will count toward the $1 Million limit. If your estate exceeds this value, estate taxes may diminish the inheritance of your beneficiaries. Next year, it is expected that all estates worth more than one million dollars will owe estate taxes unless Congress creates a new estate tax law with a different exemption level. While your “I Love You Will” will likely qualify for the unlimited marital deduction at the time of your death, resulting in no tax being paid by your surviving spouse, your spouse will die one day too, and unless the estate value has decreased, your estate will be subject to taxes of nearly 50% of the value of your estate that exceeds $1 Million.

Your “I Love You Will” also does not help protect your children’s inheritance. What if your spouse remarries after you pass away? If you have left your estate outright in a Will, and your spouse creates a new “I Love You Will” your estate may go to that new husband or wife. Even if your spouse has a will that says everything goes to your children, the new spouse may choose to “elect against their will” and be entitled to at least a child’s share of their estate.

Your spouse may also remarry and then divorce. If she or he has complete control of your marital estate, your assets could be subject to that divorce settlement. Either through divorce or a second “I Love You Will” your children could lose some or all of their inheritance.

Alternatives

If you are married and feel that a Reciprocal Will does not cover your estate needs, you and your spouse might consider an A/B Trust. This type of Irrevocable Trust provides estate tax reduction for you and your spouse and inheritance protection for your children. Another option is individual Trusts to protect the inheritance of each beneficiary.

Tags: Creating a Will, Estate Planning, Wills