The Basics of 'I Love You' Wills

Why use trusts over 'I love you' wills?

Estate planning attorneys frequently recommend a trust rather than an ‘I love you’ will because of the amount of vulnerability the will leaves exposed. 

• A lifetime beneficiary trust or QTIP trust can provide income and support to your surviving spouse while ensuring the underlying assets ultimately pass to your children. This is regardless of whether your spouse remarries or changes their mind.
• Instead of transferring assets outright to your spouse, the trust holds the assets and provides your spouse with income and potentially principal for health and support needs, for the rest of their life. When your spouse passes, whatever remains goes to your children as you originally intended.

The key benefits of this approach include:

• Probate avoidance. Trust assets transfer immediately without court involvement.
• Remarriage protection. Your spouse benefits from the assets but cannot redirect them to a new partner.
• Creditor protection. Assets in the trust are generally shielded from your spouse's creditors and long-term care costs.
• Flexibility. Your surviving spouse can even serve as trustee, maintaining control over investment decisions without having full ownership.

While trusts require more upfront planning and cost more to establish, they offer far greater protection and flexibility than the all-or-nothing approach of an 'I love you' will. Let's discuss the key points as follows:

1. Asset protection vulnerabilities

Once assets transfer outright to your surviving spouse through an 'I love you' will, the following takes place:

• Simplicity exposes assets. The assets become fully exposed to your spouse's creditors, lawsuits, and long-term care costs. This is a significant concern many couples overlook when choosing simplicity over protection.
• Depletion drains assets. If your spouse inherits everything and later requires nursing home care, your children’s inheritance could be greatly depleted to cover care expenses. Medicaid may also seek estate recovery after your spouse passes, potentially leaving little or nothing for your children.

On the other hand, trusts can provide for your surviving spouse's needs while shielding assets from creditors and long-term care spend-down requirements. The assets remain available for your spouse's benefit without being owned outright, which is an important distinction that offers meaningful protection.

2. Estate tax considerations for larger estates

While modest estates may not face estate tax concerns, couples with larger or growing estates should understand how an 'I love you' will can increase their overall tax burden. 

• When everything passes outright to your surviving spouse, all assets get lumped into their estate and taxed at their death, thus potentially wasting your individual estate tax exemption entirely.
• Using AB trusts or bypass trusts, couples can preserve both spouses' exemptions, which could save hundreds of thousands of dollars in estate taxes. Even if your estate is currently below the current $15 million exemption threshold, asset appreciation, inheritance, or life insurance proceeds could push it over the limit by the time your surviving spouse passes. 

For couples with estates approaching exemption limits, the tax savings from proper trust planning often far outweigh the added complexity.

3. Incapacity planning gaps

An 'I love you' will only addresses what happens when you die. 

• It does nothing to protect you or your family if you become incapacitated while still alive. 
• If your surviving spouse inherits everything and later develops dementia or suffers a debilitating injury, your family may need to petition a court for guardianship or conservatorship to manage those assets. 
• Court proceedings are expensive, time-consuming, and emotionally draining. They also become part of the public record and require ongoing court oversight.

A properly structured trust, on the other hand, can name a successor trustee who steps in automatically to manage assets if the primary trustee becomes incapacitated, no court involvement required.

All the above concerns can be adequately handled through the use of trusts, whether they are revocable, irrevocable, or AB/ABC trusts for married individuals.

FAQs about 'I love you' wills

Who should consider using an 'I love you' will?

These wills work best for married couples who have simple financial situations. You're a good fit if you have a modest estate (well under the tax limits), no complicated business interests, and straightforward wishes about who gets what. You should also have adult children rather than minors, since these wills can't set up guardianship or care arrangements.

How does probate affect an 'I love you' will?

All 'I love you' will have to go through probate, a court process that typically takes 6 to 18 months, involves fees and attorney costs, and makes your estate details public record. Assets like joint accounts or retirement accounts with named beneficiaries can skip probate, but individually owned assets can't.

Are there better alternatives to 'I love you' wills?

Yes, living trusts are usually much better options, because they avoid probate and give you more control over what happens to your assets. You can set up multiple types of trusts, including ones to provide income to your surviving spouse while keeping the main assets protected for your children. These are called "survivor's trusts." Other helpful documents include powers of attorney for financial decisions and healthcare directives for medical situations.

When should you update or change an 'I love you' will?

Review your will after major life changes, like divorce, moving states, having children, or the death of someone named in your will, or after significant financial changes. Most experts recommend reviewing your will every three to five years.

Michelle Kaminsky, Esq., contributed to this article.