3 Testamentary Trust Strategies for Addressing Asset Differences for Homemaker Spouses

Scenario: Imagine you're in an estate planning meeting with a couple.

One spouse is the breadwinner, and the other is on parental leave, fulfilling homemaker duties. You are meeting to draft a testamentary trust will for the breadwinner spouse, as all family assets are held in their name.

As an estate planning lawyer, how do you address the asset difference for the homemaker spouse? Do they even need a will? Should the homemaker spouse’s will include a testamentary trust?

To Quantify or Not Quantify Homemaker Duties

In my own family, with our two little kids, how many people would have to be hired if one of us were to pass away? A gardener, a housekeeper, a cleaner, a personal assistant, a nanny? How many hours a week would be needed to replace or outsource that labour, especially when the surviving spouse is still working full-time and looking after the children? The annual cost of this adds up so quickly, proving its significant worth.

Quantifying a homemaker's duties serves two purposes: first, it shifts the focus away from the tallying of asset ownership and financial contributions, towards planning for the financial and non-financial needs of the family if one spouse dies; and second, it helps determine the funding needs for the family on the homemaker spouse’s death (which can typically be solved by an appropriate life insurance policy).

The insurance proceeds to be paid on the death of homemaker spouse ensures the surviving breadwinner doesn't have to quit work to take on the homemaker's duties and can instead hire help. The ultimate goal is to ensure that children who have lost a parent have the best chance at a good childhood and that the surviving spouse can take on the responsibility of solo parenting without financial stress.

Role of Estate Planning Lawyers

This leads to a bigger conversation about our role as estate planning lawyers. Are we just here to document wishes in a will, acting purely on the instructions of the testators? Or do we actually have a larger duty to help our clients consider the realities of their estate plan to ensure it achieves their legacy goals?

A key part of being an effective estate planning lawyer is stress testing the estate plan with clients, as most people may only draft a few wills in their lifetime and really grapple with understanding the practical outcomes of the wills.

For the younger demographic, those in their 30s and 40s, this might be the first time they’ve ever approached this exercise. They may only have experience from their older relatives’ wills, often reinventing a wheel that wasn't very sophisticated or well thought out.

Strategies for Addressing Asset Differences for Homemaker Spouses

Here are the three strategies for addressing asset differences for homemaker spouses:

1. Asking the Hard Questions

Guide clients through a practical exercise, using a whiteboard, or a piece of paper, to visualise the financial reality of their estate plan. Ask them:

What will the family’s financial position look like if one of you dies?

Will there be sufficient free cash available for a surviving spouse to continue to pay the mortgage, or will all cash be frozen for months in the deceased spouse’s bank accounts?

Is there enough money to pay off the mortgage? Will you still have a mortgage?

Will you need to reduce your working hours to handle the homemaker spouse's duties?

This helps clients move from a theoretical understanding of a will to a realisation of its practical impact on their family's future. The answers often unfold naturally through this process.

2. Collaborate with a Financial Adviser

Gently suggest involving an external professional, like a financial adviser. Encouraging clients to start working with a financial adviser when they're younger can be an incredible gift.

The financial adviser can review the couple’s insurance policies and make recommendations to ensure the family’s lifestyle goals and financial needs are met even if one or both of the spouses die (or lose capacity or the ability to work).

3. Do the Mirror Image: Wills for Both Spouses

By quantifying the non-financial contributions by the homemaker spouse and working through the practical realities of losing one member of a couple, it becomes clear that insurance funding on the death of both spouses is frequently a critical component of an effective estate plan.

A testamentary trust for the homemaker spouse should not be overlooked and is just as critical as it is for the breadwinner spouse.

Our responsibility is to draft estate plans that are as robust as possible, so that they have longevity and flexibility and can cater to different situations. By having a conversation with estate planning clients and challenging their assumption that no assets means no need for a will, rather than just documenting the clients’ directions without question, you could change a family’s entire financial future.

If you are a lawyer in Australia who has addressed asset differences for homemaker spouses, I look forward to hearing from you on how you have approached it. Please share your insights on what went well or any difficulties you encountered by reaching out on The Art of Estate Planning Facebook Group.

We discuss the topic of dealing with asset differences for homemaker spouses in our very first The Art of Estate Planning Podcast.

In that episode, we explore the practical and technical issues that arise when assisting a couple with their testamentary trust wills, where one spouse holds all the assets and the homemaker spouse makes significant non-financial contributions. This episode is a must-listen for lawyers looking to enhance their skills and client outcomes through a more holistic advisory approach.