Estate Planning for Spouses in North Carolina: A Primer

Separate property, marital property, community property, joint with rights of survivorship, primary beneficiary, transfer on death: What’s it all mean? Can spouses make decisions for each other? What about incapacity and intestacy? Where to begin.

Spousal ownership, rights, and succession depend on many different elements of ownership and legal structures, but marital rights generally fall into two main categories: 1) Acting on behalf of the other spouse, and 2) Asset succession between spouses. This article is meant to be a long-form summary of how planning and ownership of assets generally works for married couples in North Carolina.

Making Decisions and Moving Assets for a Spouse

Generally speaking, legal marriage has some benefits to it in terms of rights of one spouse to act on behalf of or make decisions for the other, as well as access to information of or for the other spouse. Assets are a little more nuanced.

Marital Assets

Joint banking and investment assets can generally be accessed by both spouses, and assets can be added to or withdrawn from them accordingly without the other spouse having to sign off. This can apply to deposit accounts (checking, saving, and money market) and investment accounts equally.

Both spouses can generally consent to the service or improvement of joint personal and real property assets as well, like cars and homes. However, joint personal property and real property cannot be sold without both spouses signing the conveying instrument (like a deed or certificate of title).

Individual assets of one spouse cannot generally be accessed or moved by the other spouse without further authority from the owner spouse.

Making Decisions for your Spouse

Health care decisions for an incapacitated individual can be made by their spouse in the absence of a Health Care Power of Attorney (see below for more information on this) according to North Carolina statutory authority. As long as an individual has capacity to make their own decisions, no one else can make them for him or her, regardless of marital status. Health care decisions would also generally extend to end-of-life, organ donation, and burial/cremation decisions.

Making legal decisions or manipulating a spouse’s individual assets or benefit rights can be quite a bit harder, if not impossible, without additional legal planning. With few exceptions, one spouse cannot bind the other spouse to an obligation, and the debts of one spouse do not attach to the other spouse without being a co-signer.

Asset Succession Between Spouses

Generally speaking, the way that most spouses own assets makes asset succession between spouses, and the ensuing probate involvement, pretty straightforward and streamlined. This is because of various titling forms that make marital assets “non-probate” – meaning the asset transfers outside of the court process of probate.

Tenancy by the Entireties (“TBE”)

TBE is the ownership designation for marital real estate like the marital home. TBE carries with it two very significant benefits and rights: 1) Rights of survivorship between spouses – if one spouse passes, the surviving spouse will own the real estate outright and outside of probate involvement; and 2) creditor protection – the debts of one spouse cannot attach to TBE property, only joint debts of both spouses. If the real estate is owned as TBE, the death of one spouse will transfer 100% ownership to the surviving spouse immediately, but subject to all encumbrances and expenses of the real estate.

Joint Tenants with Rights of Survivorship (“JTWROS”)

JTWROS is generally how many married couples will own deposit and investment accounts. This means that each spouse is an equal owner of the account, and that the account itself will transfer outright to the surviving spouse if either spouse dies, similar to the TBE ownership of real property set forth above. But, unlike TBE ownership, there is no creditor protection between spouses for JTWROS accounts.

Transfer on Death (“TOD”)/Payable on Death (“POD”)

Accounts that are individually owned by one spouse may still transfer to the other spouse at the death of the account owner, even without joint ownership. Transfer on Death and Payable on Death designations allow the account to transfer or pay to the named beneficiary, in most cases this will be the surviving spouse. TOD and POD designations do not give the other spouse access to the account during the owner’s lifetime, it just passes ownership immediately at death and keeps the individual account out of the deceased spouse’s probate.

Primary Beneficiary Designations

On retirement accounts and life insurance plans, the plan participant will generally be prompted to add a primary and secondary beneficiary at death. Similar to TOD and POD designation, the primary designation is usually occupied by the other spouse and allows the plan or cash death proceeds to be transferred to the surviving spouse immediately upon death. Also similar to TOD/POD, the primary designation does not give access or rights to the accounts/plans during the life of the plan participant.

Estate Planning for Spouses

Generally speaking, and as explained above, there are some gaps where in marital rights and ownership which need to be filled by proactive estate planning.

Powers of Attorney

The lack of access to individual assets and the individual contractual rights of each spouse can lead to significant complications if one spouse becomes incapacitated or incompetent. With nothing else in place, the sole remedy for this issue would be to obtain a court-ordered guardianship over the incompetent spouse, which is a pretty extreme step. By putting a financial power of attorney in place while both spouses are competent, the need for a guardianship for financial affairs can be completely avoided.

To make sure that each spouse’s wishes are known and followed, a health care power of attorney with living will provisions should also be put in place, which would also allow the appointment of alternate agents to act in the absence of the other spouse.

Last Will and Testament

Even though many marital assets will flow from one spouse to the other at death, some assets will not avoid probate and may, in the absence of a Will, be split between unintended beneficiaries like minor children.

A valid Last Will and Testament will allow all assets to pass to the surviving spouse, as well as the appointment of alternate Executors and Guardians for minor children, and alternate beneficiaries in the event that both spouses pass away together.

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