Insurance > Life Insurance

How to prepare for possibility of two simultaneous deaths
Associated Press. New York.
Copyright Associated Press

DENVER (AP) - The children are on their own and you're retired, or at least semi-retired. Finally, you and your spouse have the time and the money to catch up on all the traveling you've wanted to do.

But before you head out the door, there's one last thing you should do. It's not a pleasant task, but it could save your heirs a lot of hassle, and perhaps money.

You need to prepare your estate plan, in particular your will, in case of the unfortunate possibility that you and your spouse could die together in an auto or airplane accident.

The simultaneous death of spouses occurs frequently enough that most states have adopted the Uniform Simultaneous Death Act. The act, or similar state statute, addresses the problem of how to determine the order of death when couples die in a common disaster.

The act "can throw your estate plans out of whack if you haven't provided for it properly in your estate plan," says E.G. McBroom, an estate-planning expert at the College for Financial Planning.

Many couples think they have everything covered by holding their property in joint tenancy, according to McBroom. They also have each other named as beneficiary for their insurance policies, retirement plans and individual retirement accounts (IRAs).

They assume that when one spouse dies, the other will receive the property. They avoid probate and estate taxes through the use of the marital deduction.

But if they die simultaneously without a proper will or the use of an irrevocable living trust, McBroom cautions, their plan falls apart. "If you don't have any way to determine which spouse dies first, then under the act the spouse whose property is being disposed of is treated as having survived the other spouse," McBroom explains.

That means that the husband's half of the property held in joint tenancy can't be passed to his wife, because she is considered to have died first. But her half of the property also can't pass to him because, likewise, he is considered to have died before her.

Consequently, everything held jointly goes through probate, McBroom says. The same may apply to insurance policies or retirement plans that name only a spouse as beneficiary.

Since the beneficiary is treated as having died before the insured or the retirement account owner, the proceeds go into the insured or owner's estate and into probate. Also, because each estate is treated separately, there are two sets of probate costs and potential probate delays, McBroom says.

In addition to having the property go through probate, it may be open to estate tax problems if one or both of the estates are large enough. This is often the case when an older spouse has more wealth than a younger spouse does.

Normally, the older person would die first and the estate would pass tax-free to the younger spouse through the marital deduction. But if they die simultaneously, there is no marital deduction.

Thus, if the younger spouse had an estate valued at only $100,000 or $200,000, he or she could have shielded up to $650,000 in estate taxes (1999 exemption) if there had been a marital deduction.

McBroom notes that, generally, if the order of death cannot be determined, the act does not apply. However, a provision of the Uniform Probate Code can have the same impact, since it treats a person who dies within five days (120 hours, to be exact) of their spouse's death as having died first.

"If you and your spouse die simultaneously, and that's not planned for in your estate documents, it can be a financial disaster," McBroom says.

The problems can be worked around by having an attorney insert language in your will that names the spouse who should be considered the survivor in the event of a simultaneous death.

For example, the spouse with the smallest estate usually should be the survivor, so you can take better advantage of the marital deduction. Or the language may say that if the spouse doesn't survive a certain length of time after the accident, such as 120 days, the property will pass not to the spouse but to someone else named in the will.

Couples also can help avoid probate and minimize taxes by naming contingent beneficiaries on their life insurance policies, retirement plans and IRAs. A contingent beneficiary is someone who receives the proceeds in the event the primary beneficiary (your spouse) dies before the insured or account owner dies.

Obviously, this is all very complicated, and McBroom recommends that you consult an estate-planning attorney to see what language relating to simultaneous death is most appropriate for your estate.


End advance for Thursday, Dec. 17
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