What are Reciprocal Wills for Married Couples?
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What are Reciprocal Wills for Married Couples?

What are Reciprocal Wills? Are Reciprocal Wills and Joint Wills the same thing? In this article, we'll walk you through the basics of a reciprocal Will and the possible pros and cons of creating this plan! Keep reading to learn more.

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A reciprocal will is an estate planning tool that some married couples use when they want to have identical wills. This idea appeals to couples who just want to leave their assets to each other and then to their children or chosen heirs. That sounds pretty cut and dried, especially when you and your spouse are on the same page about everything. However, reciprocal wills aren’t right for everyone. Let’s go through the pros and cons of creating reciprocal wills.

Is a Reciprocal Will the Same Thing as a Joint Will?

First of all, it’s important not to confuse a reciprocal will with a joint will. A joint will is a single document that speaks for both spouses. Usually, the will says that the other spouse inherits everything as soon as the other person dies. When the second spouse passes away, the estate will pass as both parties agreed. Many couples like this idea because it seems more efficient to have a single legal document. 

This works well in theory, but there are some major drawbacks to a joint will that make it disfavored in modern times. For example, the will has to meet a lot of legal requirements to ensure that both parties are in full agreement. A joint will is designed to be hard to change, which can cause real problems when one spouse’s wishes change over time. Since joint wills are irrevocable after the first spouse dies, a change in circumstance can also create legal headaches. 

For example, imagine a couple with two healthy children, a son and a daughter. When the children are still minors, the husband dies. However, when the son is 18, he is injured in a ski accident and is paralyzed from the neck down. The wife would like to update the will to change their children’s inheritance, giving the son a larger share of the estate so he can live in the family home with nursing care. In some jurisdictions, it will be impossible for the wife to change the joint will to reflect this new circumstance.

Joint wills are a relic from a time when spouses were not considered equal partners. For all of these reasons, most estate planning experts will steer you away from a joint will.

The Purpose of Reciprocal Wills

But say you still believe that you and your spouse have the same wishes about the estate? Then you might prefer a reciprocal will. Rather than a single legal document like a joint will, reciprocal wills provide two legal documents, one for each spouse. When both spouses want their children to be raised by the same legal guardian in the event of their death, they often strongly consider reciprocal wills.

Reciprocal wills are mirrors. Each spouse leaves their assets to the other person with the understanding that the surviving spouse will then leave the assets to the agreed-upon beneficiaries upon their own death. This differs slightly from a joint will, since it leaves room for the two spouses to make their own choices about some things. So if one spouse has a child from a previous marriage, for instance, the parent can still provide for that child in their will.

Are There Drawbacks to Reciprocal Wills?

There are some drawbacks to reciprocal will arrangements. The biggest problem is that the wills still lack the flexibility that you want when you’re planning an estate. This is especially true if the estate is complicated, like when the couple has children together and step-children and multiple properties. If a couple has reciprocal wills and a complicated estate, there is a greater likelihood that someone will contest the will.

Things also get complicated if a spouse remarries after the first spouse dies. Most couples prefer not to think about this possibility. But let’s imagine that your estate includes a summer home in Kennebunkport, Maine, and several family heirlooms that are hundreds of years old. You have reciprocal wills because you’re happy to imagine your husband and children enjoying the summer house for decades to come. But what if your husband remarries after you die? What happens to your estate? 

Well, your entire estate goes to your husband and he in turn can make a new will with his new wife. That new will could actually give the new, much younger wife your summer home and all its possessions, even if you wanted them to go to your children. In some states this is known as “electing against the original will” and it will result in the second wife getting a share of the estate that is equal to your children’s shares. There would also be a problem if your husband divorced his second wife since all of your assets could be up for grabs in the divorce settlement.

Mutual Wills

If spouses really want to lock in the promises made in a reciprocal will, they can execute mutual wills instead. A mutual will is both a will and a contract. As a contract, it imposes enforceable promises upon the parties. That means if someone breaches the contract’s terms, the other spouse (or a third party beneficiary) could sue for damages in court. The most common enforceable promise in a mutual will is that the surviving spouse cannot change the distribution of assets that both spouses agreed upon. If the surviving spouse tries to change the will to disinherit the couple’s children, for example, the children can sue the estate. 

Mutual wills become irrevocable when the first spouse dies. The surviving spouse can typically change the executor, but the rest of the estate essentially freezes and is held in trust. That solves the problem that we discussed above with the reciprocal will resulting in a windfall for the new wife!

The Tax Implications of Reciprocal, Joint, and Mutual Wills 

Mutual wills, reciprocal wills, and joint wills can leave you vulnerable to estate taxes. Here’s why. When the first spouse dies, leaving a large estate, the assets pass to the surviving spouse with no tax hit because of the federal law giving the surviving spouse an unlimited marital deduction. That deduction lets a person transfer any amount to their spouse at any time without a penalty or tax. However, when the second spouse dies, the entire estate, which might have greatly increased in value, could be hit with the estate tax. This means the people who inherit under the estate will face a big tax penalty. 

One way to avoid the estate tax is for a married couple to establish an A-B trust. Under an A-B trust, the couple establishes two separate trusts with the same value of assets in each trust. When the first spouse dies, the “A” trust contains the assets of the surviving spouse and it will not pay estate taxes because of the marital deduction. The “B” trust will contain the assets of the deceased spouse. Then the “A” trust will transfer a sum of money that is equal to the exemption into the “B” trust.

If your estate is large enough to potentially face estate taxes, it is worth talking to your accountant for advice about whether an A-B trust is right for your situation.  

FastWill can help married couples execute joint, mutual, or reciprocal wills that are tailored to each person’s needs.

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