Timing is everything when it comes to estate planning - the simultaneous death issue
When both spouses die at the same time, whether as the result of an accident or natural disaster, sticky estate planning questions must be resolved concerning which spouse died first.
Here’s one you didn’t see in the movie! When the Titanic sank in the icy waters of the North Atlantic, there were estate issues created by the fact that many couples both perished. If both spouses die at the same time, it must be determined who died first before the estate can be settled.
There are several strategies to ensure that your estate is handled properly, if something like that happens to your intended beneficiaries. Motley Fool’s article, “Protect Your Estate Plan with a "Titanic" Clause,” explains that the Simultaneous-Death Clause is designed for two people who are leaving some or all of their assets to each other. If both spouses die at once, or if it's impossible to determine which spouse died first, the clause kicks in and names one of them as the first to die.
This can be very important in estate planning in order to ensure the orderly dispersion of the assets of the spouse deemed to have died first. It could also reduce or even eliminate estate taxes. For Example, The Simultaneous-Death Clause could dictate that the wife is deemed to have died first. As a result, her estate would be transferred to her husband's estate before it’s distributed. This dramatically reduces the amount of estate tax due.
Those couples, who don't have the Simultaneous-Death Clause in their wills and die simultaneously, may be subject to the Uniform Simultaneous Death Act. This law says that when two people who are leaving any assets to each other die within a certain period of time (many states say 120 hours and others say 120 days), then it’s legally deemed that both members of the couple predeceased each other.
Estate planning attorneys will advise you to add another clause in your will that requires your beneficiaries to survive you for a minimum period of time before they can receive your assets, for example, six months. This can keep your assets from going through probate more than once in a relatively short time—and possibly having two estate tax hits with large estates.
Finally, there’s the "Armageddon," the "Titanic" or an "all dead" clause. This provision is a failsafe in case all of your primary and contingent beneficiaries die before receiving your assets. Under the “Titanic clause,” you designate a final beneficiary to receive all of your assets in the event that none of your previous beneficiaries lives to collect them. Many folks name a qualified charitable organization or another institution because the death of any single person can’t prevent an institution from receiving the assets.
Unlike the Simultaneous-Death Clause, the Titanic Clause covers all of your beneficiaries, not just the primary ones. For instance, if every member of your family is listed as primary and contingent beneficiary and you all die at the same time in a freak accident, there would still be a Titanic beneficiary who would distribute your assets as directed by your will.