A Guide to Estate Planning for Second Marriages

A Guide to Estate Planning for Second Marriages – SmartAsset

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Getting married for a second time following a divorce or the death of your first spouse can feel like a fresh start. But it’s important to consider how joining your life with someone else’s may impact your financial plan, including how you manage your estate. What is fair in a second marriage and estate planning? It can be a difficult question to answer, especially when you or your new spouse are bringing children into the marriage or you plan to have children together at some point. Understanding some of the key financial issues surrounding a second marriage can help with reshaping your estate plan. So can consulting a financial advisor, especially one experienced in estate planning for second marriages.

Key Estate Planning Considerations for Second Marriages

Remarriage can bring up a number of important questions for estate planning. Both spouses should be aware of what the central issues are when updating individual estate plans or creating a new joint one.

Here are some of the most important questions to ask for estate planning in a second marriage:

  • What assets will be left to each of your children?
  • Do you plan to have additional children together and if so, what assets will be preserved for them?
  • Which assets will you each continue to hold individually?
  • Are there any assets that will be retitled in both of your names, such as a first home, vacation home or bank accounts?
  • Are either of you bringing any debts into the marriage or will you incur new debts after the marriage?
  • Do each of you have a will in place that needs to be updated?
  • Or will you establish a new joint will?
  • Besides a will, what other estate planning tools may be necessary, i.e. a trust, advance healthcare directive or power of attorney?
  • Will you continue working with your current financial advisors or choose a new advisor to help you manage your financial plan together?

Asking these kinds of questions can help you each get a sense of the other’s perspective on estate planning. Ideally, you should be having these types of discussions before the marriage takes place to minimize potential conflicts later. This can also help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. But if you’ve already remarried, it may be a good idea to have this discussion sooner, rather than later.

At the same time, it can also help to complete an inventory of your assets and liabilities so you both know what you’re bringing into the marriage. This can help with managing the distribution side of your estate plan later as well as planning for how any debts may need to be handled should one of you pass away.

Estate Planning for Second Marriages With Children

Having kids can add a wrinkle to your estate planning efforts when you’re getting remarried. For example, you may wish to leave certain assets to your children while your new spouse may want your assets to be equally distributed among his or her children as well as yours. Or there may be questions over who would assume control over assets on behalf of minor children should one of you die.

When there are children in the picture, it’s important to consider any provisions you’ve already made for them in a will or trust and how that might affect any assets your spouse stands to inherit. You may need to update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your children’s inheritance. Provisions may also need to be made for any children you plan to have if you’re still relatively young when a second marriage occurs.

It’s important to consider the age of your children when deciding what is fair in a second marriage and estate planning. If you have adult children, for example, it could make sense to gift some of their inheritance to them during your lifetime. But if you have minor children, you and your new spouse would need to decide who should be in charge of managing their inheritance on their behalf if one of you dies prematurely.

Check Beneficiary Designations

Assets that already have a named beneficiary may need to be updated if you’re remarrying. For example, if you named your previous spouse as beneficiary to your 401(k), individual retirement account or life insurance policy, you’d likely want to change the beneficiary to your new spouse or to a trust you’ve set up so that your former spouse can’t collect on those assets.

You should also consider other assets, such as bank accounts or real estate, should be titled. Adding your new spouse to your home as a joint tenant with right of survivorship may seem like the right move for keeping things simple in your estate plan. But doing so means that if something happens to you, your spouse will automatically assume full ownership of the home. They could then do with it as they wish, regardless of what you might have specified in a will or trust.

Look for Gaps in Your Estate Plan

When deciding what is fair in a second marriage and estate planning, consider where the gaps might exist that could leave your assets in jeopardy. Not having a will, for example, could be problematic if you pass away. Without a will, your state’s inheritance laws would be applied – not your wishes. That means your assets may not go to your children or other heirs as you’d like them to.

A trust can also be a useful tool in estate planning for passing on assets to your spouse or children as well as managing estate and inheritance taxes. If either of you are bringing considerable assets into a second marriage or you want to minimize the potential for conflicts over asset distribution later, setting up one or more trusts could be a good idea. Talking to an estate planning attorney can help you decide whether a trust is necessary and if so, which type of trust to set up.

Also, consider whether you have sufficient life insurance coverage to provide for the surviving spouse and any children associated with the marriage. Both spouses in a second marriage may need to have life insurance coverage, particularly if one person is the primary breadwinner while the other is the primary caregiver for children. Checking your existing life insurance policies and talking to your insurance agent can help you determine whether what you have is enough or if more coverage is necessary.

Finally, think about what you may need in terms of end-of-life planning. Long-term care insurance, for instance, can help pay for nursing home costs so that your spouse or either of your children aren’t left in the lurch financially. An advance healthcare directive and a power of attorney can ensure that your wishes are carried out in end-of-life situations where you’re unable to make financial or medical care decisions on your own behalf.

The Bottom Line

Deciding what’s fair in a second marriage and estate planning can be tricky and it’s important to get the conversation started early. Understanding what the biggest challenges of estate planning in a second marriage are can help you work together to shape a plan that you can both be satisfied with. And if you have adult children, it’s important to keep them in the loop so they understand how a second marriage may impact their inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the implications of a second marriage and what it might mean for your portfolio. You and your spouse may choose to maintain your current advisors or find a new advisor to work with together. In either case, finding the right professional to work with doesn’t have to be hard. SmartAsset’s financial advisor matching tool can offer personalized recommendations for professional advisors in your local area, in just minutes. If you’re ready, get started now.
  • Trusts can be a useful estate planning tool for couples, including those who are getting married for a second time. A marital trust, for example, goes into effect when the first spouse dies. This can be helpful for passing assets on to a surviving spouse while minimizing estate taxes. You may want to create this type of trust, along with a second living trust set up specifically for your children, to manage assets more efficiently while also protecting them from creditors.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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8 Mistakes That Can Sabotage Your Retirement

Senior filled with regret
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Making big financial mistakes can sabotage the comfort of your golden years. You can wreck even the best-laid plans with a single poor choice.

Be aware of these common blunders — some that many people make well before retirement age, and others that happen after they leave the workforce — and take action to avoid them.

Mistake No. 1: Failing to plan for medical expenses

Lisa F. Young / Shutterstock.com
Lisa F. Young / Shutterstock.com

Medicare kicks in at age 65, but that is not the end of your medical expenses. Fidelity estimates that a couple, both age 65, who retire in 2020 will need $295,000 of their own money for medical expenses over the course of retirement.

Such costs include deductibles and premiums associated with Medicare, plus out-of-pocket costs.

Take action: Start by reading “How to Pick the Best Medicare Supplement Plan in 4 Steps.” Also:

  • Stay healthy by exercising regularly and maintaining a healthy weight.
  • Check into long-term care insurance. It’s cheaper if you sign up when you’re younger.

Mistake No. 2: Underestimating costs

Corepix VOF / Shutterstock.com
Corepix VOF / Shutterstock.com

Retirement costs can be surprisingly high. You may find that to manage your costs, you need to earn some extra income. It’s not the end of the world, but possibly not what you had in mind.

If you do take this path, check the Social Security Administration’s rules for working while receiving Social Security benefits.

Take action: There are a lot of jobs you can do from home, and many ways to earn a little money on the side. If you’re lucky, it may be something you love to do as a hobby — gardening, tending pets, caring for children or working as a handyman.

For more, check out “20 Ways Retirees Can Bring in Extra Money in 2020.”

Mistake No. 3: Celebrating retirement with a big purchase

Monkey Business Images / Shutterstock.com
Monkey Business Images / Shutterstock.com

You’ve undoubtedly got a wish list for retirement. But hold off on making major purchases at first. Instead, give retirement a spin and see what you’re spending each month.

Track expenses — every single one. A year’s tracking gives the best picture because it includes both one-time and seasonal expenses.

Take action: Keep receipts, watch bank and credit card accounts online on a weekly basis, and update your tracking regularly:

  • Try online budget programs. Money Talks News partner You Need a Budget lets you track expenses automatically. Other options include Mint and BudgetTracker.
  • If you prefer, track expenditures manually and offline on a spreadsheet.

Mistake No. 4: Helping out adult kids

Iakov Filimonov / Shutterstock.com
Iakov Filimonov / Shutterstock.com

Many parents set themselves up for a crisis in retirement by supporting adult children financially.

Adult children still have time to pay off any college loans and save for retirement. Their parents — in other words, you — are running out of time to save for the golden years ahead.

Take action: Make a concrete plan with goals and deadlines for gradually withdrawing financial help from your kids. Then:

  • Discuss the changes with your kids and help them learn to budget.
  • Model financial restraint and responsibility for your kids.

Mistake No. 5: Claiming Social Security too soon

Andrey_Popov / Shutterstock.com
Andrey_Popov / Shutterstock.com

Waiting to claim Social Security benefits is one of the best investments around. As we point out in “12 Ways to Maximize Your Social Security Checks“:

“If you start receiving benefits right at age 62, your checks will be forever 20% to 30% smaller than if you had waited until you reached your full retirement age.”

A Social Security Administration table shows the reduction for taking early Social Security benefits depending on the year you were born, as well as listing the range of full retirement ages (FRA) by year of birth.

Take action: Go to the Social Security Administration’s website to see your estimated benefits. If you’ve paid into the Social Security system while working, you can create an account and pull up a statement showing what you’ll earn by claiming benefits at various ages. Also:

  • Keep your current job if you can, and delay retirement. Or get a part-time job that helps you hang on longer before claiming benefits.
  • Hire a certified financial planner to review your retirement plan, income and expenses with you.

Mistake No. 6: Forgetting about the taxman

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Carol Franks / Shutterstock.com

The IRS won’t disappear from your life when you retire.

For instance, traditional tax-deferred retirement plans like 401(k) plans and IRAs require you to withdraw a minimum amount each year (a required minimum distribution or RMD) beginning in the year you turn 72. If you don’t take that income, you could be hit with a big penalty.

​Good planning — especially before retirement — can help manage the tax bite. Money Talks News founder Stacy Johnson says one strategy is to roll a portion of retirement savings into a Roth retirement plan, which has no minimum distribution requirements.

Roth plans require taxes to be paid before the money goes in. You withdraw the funds tax-free later. The strategies you use will depend on your income now and what you expect it to be after retirement.

Take action: Make a plan — or stop by our Solutions Center to find a great financial adviser who can help you craft a strategy — that takes taxable retirement income into account.

Mistake No. 7: Ignoring estate planning

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Kellis / Shutterstock.com

Get your affairs in order before you’re ill or old. That way, you’ll control where your money and possessions go. It’s a kindness to your heirs, too, because they won’t be saddled with the work.

Take action: Make or update your will. If appropriate, make a revocable living trust.

  • Sign a durable power of attorney naming someone you trust to make your legal and financial decisions if you cannot.
  • Assign health care power of attorney to someone to make your medical decisions if you’re unable.

Mistake No. 8: Investing too conservatively

designelements / Shutterstock.com
designelements / Shutterstock.com

As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 20 or 30 years. Savings held too conservatively shrink because of inflation. A portion of your funds needs to grow.

“Never taking risk means taking a different risk,” Stacy Johnson says.

Take action: Learn about investing so you can be confident about taking measured risks to earn gains, even as you grow older. It’s not difficult to follow the basic rules for sane investing, including how to spread risk among diverse holdings.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

COVID-19 Gives a Boost to Estate Planning: How You Can Get a Will Done—and Fast

Here’s the macabre truth: With hundreds of thousands of confirmed cases of COVID-19 across the country—and the death toll steadily rising—estate planners are reporting an increase in calls and transactions by people wanting to put their affairs in order in case of their death.

But estate planning isn’t just for those with a life-threatening diagnosis. In fact, if you’ve never considered who will inherit your assets, or whom you’d appoint to be your power of attorney, now’s probably a good time. We spoke with several experts to find out everything you need to know about quickly securing your assets during the pandemic—or beyond. Keep reading for all the details.

Estate planning with a lawyer vs. online

If you’re panicked about getting your estate planning done quickly, maybe you’ve wondered: Can’t I just do it online?

While many lawyers advocate for working with a professional, there are situations in which it might make sense to take the do-it-yourself online approach.

“If you’ve already taken stock of your assets and decided on how it should be managed, creating an estate plan is rather straightforward,” explains Felix Sebastian of Legal Templates. “An attorney can draft one up for you in a matter of hours, or you can do so yourself by using forms provided by your state government.”

For those with relatively simple estate planning goals (i.e., a limited number of assets and beneficiaries, and no special circumstances), online services can be a great option, with the added perk of having an incredibly fast turnaround time.

“We have streamlined the process to make it easy and efficient,” says Patrick Hicks, head of legal at Trust & Will. “Most people finish in 15 to 30 minutes, but the process is driven by the individual, so anyone can take more or less time as they desire.

“Our process is much like TurboTax,” he adds. “One easy question at a time, and each question will then lead you through the process to collect and synthesize all of your information and decisions. Most people can complete it all with no preparation and no other documents needed.”

__________

Watch: Our Chief Economist’s View on the Pandemic, Mortgage Rates, and What’s Ahead

__________

The downsides of DIY estate planning

If this sounds good to you, you wouldn’t be alone. Hicks says their service has seen a 50% increase in activity even compared with other busy times of the year, and Mary Kate D’Souza, founder of online estate planning service Gentreo, reported a 143% increase in membership over the past week alone.

And while there are certainly potential perks of using an online service (e.g., getting documents faster or saving money on lawyer fees), just be sure you understand what you’re actually getting: a set of unnotarized forms that will likely not include any sort of legal advice.

“Creating an estate planning document such as a will only gets you halfway there,” Sebastian says. “Pretty much every single state and territory of the U.S. requires that these documents be signed by witnesses and/or notarized.”

And on that note: While putting your online forms together can be done relatively quickly, it may end up taking you much longer to get those forms notarized, even if you have the option to do so remotely.

Lawyers urge clients not to delay their wills and trusts

If you’re considering working with a lawyer for your estate planning, the experts are advising you get to it—and fast.

“Since the COVID-19 outbreak, we have experienced a 30% increase in calls from people wanting us to draft powers of attorney, health care powers of attorney, and wills,” says family law and estate planning attorney Chelsea Chapman of McIlveen Family Law Firm.

Plus, beyond those new clients, estate planners are trying to juggle their existing roster of clients, too—who are, understandably, concerned.

“With the COVID-19 outbreak, we’re receiving an exponentially greater number of existing-client calls than usual,” says Judith Harris, an attorney and co-chair of the Estate Trust and Tax Group at Norris McLaughlin.

Although many law offices typically take several weeks to complete estate planning packages, exceptions can be made for emergency situations.

“In the event of an emergency, we can get documents done in 48 hours,” says Eido Walny, founder of the Walny Legal Group. “That’s one heck of a rush job, however, and would require skipping over a lot of other people in the process. As a result, clients who ask for that kind of turnaround should expect to offer all the cooperation that is asked of them and also to pay a hefty premium for the service. But it can be done.”

The final word

Ultimately, however you choose to get your estate planning done, there’s one key takeaway.

“Don’t wait,” Walny says. “Get the planning process started now. Estate planning is not death planning—these documents will help you during life, during illness, and also in death. Hopefully this crisis will pass, and when it does, these documents will continue to be valuable, unlike the 1,200 rolls of toilet paper hidden in the basement.”

For more smart financial news and advice, head over to MarketWatch.

Source: realtor.com