Proper Estate Planning can Protect Couples with Big Age Gaps

October 30, 2024

A decade-sized age gap doesn’t seem like much when you are 38 and he’s 57. However, as you get older, the age difference can lead to challenges, including those concerning estate planning and long-term care. Proper estate planning can protect couples with big age gaps. There needs to be enough resources for the surviving spouse if the older spouse passes first, which isn’t always the case. According to a recent article, “Estate Planning for May—December Couples,” from Next Avenue, finances, wills and estate plans must consider the age difference.

The U.S. Census Bureau reports the average age gap in traditional marriages as 3.69 years. However, in some Western countries, about 8% of all traditional couples have an age gap of 10 years or more.

One couple had a nearly 20-year age gap when they sat down with an advisor. The husband had three grown children from a prior marriage and didn’t want to put his second wife’s financial security in jeopardy if he should die first. His will needed to be drafted so she would inherit the home outright, while also providing his three children with an equal share of remaining assets after a certain period.

Naming someone who is not also a beneficiary to be the executor of your estate may be especially helpful here. Someone who isn’t going to benefit from an inheritance may be more objective about how assets are distributed. During their years of practice with families of all types, experienced estate planning attorneys see all kinds of family situations, including couples in subsequent marriages with large age gaps. They can help navigate the best way for wealth to be distributed to protect both the younger spouse and any children from prior marriages.

A few essential tasks:

Review and update beneficiary designations on accounts like life insurance, retirement accounts and other assets.

Be clear in conversations about your intentions for personal property and document your wishes in your will. Family disputes over heirlooms, regardless of their value, can happen if you haven’t put those wishes in writing.

If the older spouse dies and the young one remarries, it’s possible the new spouse could inherit the older spouse’s assets unless good estate planning is done. The older spouse may consider leaving assets in a marital trust designed to benefit the surviving spouse. This way, the surviving spouse has access to funds as needed. However, upon the surviving spouse’s death, the assets go to the older spouse’s other beneficiaries.

Couples should always have a Power of Attorney, Health Care Power of Attorney and Living Wills created when working with an estate planning attorney. The medical power of attorney allows another person to make medical decisions in case of incapacity. A Living Will outlines what treatments you do or don’t want if you are terminally ill or injured. These documents vary by state and, just like your will, should be personalized to reflect your wishes. An estate planning attorney will show you how proper estate planning that can protect couples with big age gaps. If you would like to learn more about planning for couples, please visit our previous posts.

Reference: Next Avenue (Sep. 5, 2024) “Estate Planning for May—December Couples”

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Understanding Primary and Contingent Beneficiaries is essential for Estate Planning

September 3, 2024

Creating an estate plan is the most important way to ensure that your wishes will go into effect after you pass away. During estate planning, you’ll have to designate beneficiaries. Understanding the difference between primary and contingent beneficiaries is essential for estate planning. Knowing this distinction can make your estate plan more comprehensive and effective, giving you peace of mind that your loved ones will be okay when you’re gone.

A primary beneficiary is the person or entity you choose to receive your assets first when you pass away. This could be a spouse, a child, a friend, or even a charity. When you set up a will, trust, or other financial accounts, like life insurance or retirement, you’ll be asked to name one or more primary beneficiaries.

You might name your spouse as the primary beneficiary if you have a life insurance policy. If you pass away, your spouse will receive the payout directly.

Choosing a primary beneficiary ensures that your assets go to the person or organization you want them to benefit. It can also help avoid conflicts among family members and ensure a smooth transfer of assets. You minimize the chances of disputes and legal challenges by clearly designating who should receive your assets.

Life is unpredictable, and there might be situations where your primary beneficiary cannot receive your assets. They might predecease you, be unable to be located, or simply refuse the inheritance. This is where a contingent beneficiary comes into play.

A contingent beneficiary, or secondary beneficiary, is essentially a backup beneficiary. The contingent beneficiary is next in line if the primary beneficiary cannot receive the assets. For instance, if your spouse is the primary beneficiary and they pass away before you, your contingent beneficiary will receive the assets instead.

According to ElderLawAnswers, naming a contingent beneficiary is essential in estate planning. A contingent beneficiary is designated to receive your assets if your primary beneficiary cannot do so.

This additional layer of planning provides security and peace of mind, guaranteeing that your assets are passed on as you intended, regardless of any unexpected events involving your primary beneficiary. Your wishes will remain clear even in unforeseen circumstances, and your estate plan will carry them out.

Yes, you can designate multiple primary and contingent beneficiaries. This is particularly useful if you have a large estate or multiple heirs. For example, you might want to divide your estate equally among your children. In this case, you can name all your children as primary beneficiaries, each receiving a specified percentage of your assets.

When you have multiple primary beneficiaries, your assets are divided according to the percentages you specify. If one of the primary beneficiaries cannot receive their share, their portion can be reallocated to the remaining primary beneficiaries or passed on to the contingent beneficiaries.

You can similarly have multiple contingent beneficiaries. For example, you might name your spouse as the primary beneficiary and your two children as contingent beneficiaries. If your spouse cannot receive the assets, your children would then receive the assets consistent with your instructions.

While beneficiaries are individuals you choose to receive your assets, heirs-at-law are entitled to inherit from you under state law if you don’t have a will. Without an estate plan, state intestacy laws will distribute your assets. This usually goes to your closest relatives, such as your spouse and children. Designating primary and contingent beneficiaries allows you to control who receives your assets rather than leaving it to state law.

Life circumstances change, and so should your estate plan. Major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary may require updates to your beneficiaries. Regularly reviewing and updating your estate plan ensures that it remains aligned with your current wishes and life situation.

Understanding the roles of primary and contingent beneficiaries is essential for robust estate planning. It ensures that your assets are distributed according to your wishes, even in unexpected circumstances.

An experienced estate planning attorney can help you designate beneficiaries, create a comprehensive estate plan and provide peace of mind for you and your loved ones. If you would like to learn more about beneficiaries and their role in estate planning, please visit our previous posts.

Reference: ElderLawAnswers (May 20, 2024) “What Is a Contingent Beneficiary?”

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Charitable Remainder Trusts may be Solution to Stretch IRA loss

June 6, 2024

For many years, the Stretch IRA was used to leave assets to heirs very tax-efficiently. Then came the SECURE Act, according to the article “Charitable Remainder Trust: The Stretch IRA Alternative” from Kiplinger. The ability for IRA beneficiaries to take the smallest of RMDs (Required Minimum Distributions) annually and leave a large sum in the IRA to grow tax-deferred over their lifetimes was over. Charitable Remainder Trusts may be solution to the loss of the Stretch IRA.

The SECURE Act in 2019 brought significant changes, taking away a valuable tool from anyone who died after Dec. 31, 2019. The new rules require the entire amount in an inherited IRA to be withdrawn by the end of the tenth year of the original account owner’s death. These withdrawals are taxable, so instead of stretching the withdrawal out over an extended period, accounts must be emptied, and taxes paid within a relatively short period. Compared to the stretch, the Ten-Year Rule is, in a word, taxing. It’s crucial to understand these changes and their implications.

There are exceptions to the rule for certain beneficiaries, including spouses and disabled individuals, non-spouse beneficiaries no more than ten years younger than the original account owner and a biological or adopted minor until they reach age 21. On their 21^st birthday, they have ten years to empty the account.

There are alternative strategies for IRA owners to consider to help heirs enjoy more of their legacy, which an experienced estate planning attorney will know. One is the Charitable Remainder Trust (CRT), which offers both tax benefits and charitable giving.

Start by designating a CRT as the beneficiary of your IRA. When you die, the assets will pass to the CRT. Since the CRT is a tax-exempt entity, the assets in the IRA continue to grow tax deferred. The CRT’s beneficiaries receive income distributions over a specified period. At the end of the CRT, any remaining funds go to a charitable beneficiary.

CRT beneficiaries may receive distributions over a much longer period than a direct inheritance or inherited IRA, which has a mandated 10-year distribution.

If you are seeking a solution to the loss of your Stretch IRA, a Charitable Remainder Trust may be a solution. The CRT strategy is best for charitably minded people who would have donated to the charity regardless of the IRA restrictions. If this aligns with your values, it makes sense from an estate planning perspective. There are costs associated with setting up a CRT, which should be considered when considering the totality of your estate plan. Speak with your estate planning attorney to see if this makes sense for you and your family. If you would like to learn more about CRTs, please visit our previous posts.

Reference: Kiplinger (April 19, 2024) “Charitable Remainder Trust: The Stretch IRA Alternative”

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Key Estate Planning Strategies for Executives

May 23, 2024

Executives manage complex financial landscapes while striving for professional success, creating unique estate planning goals and challenges. Central Trust Company shared insights in the article “Estate Planning For Executives,” which focused on liquidity concerns, tax efficiency and beneficiaries for certain assets. This article explores key estate planning strategies for executive’s unique goals.

Executives often face liquidity challenges and may have a significant portion of their wealth tied up in company stock. Diversifying investments and implementing strategies to manage concentrated stock positions are critical to mitigate risk and enhance financial security.

Navigating tax-efficient giving strategies is essential for executives looking to give back to their communities or support charitable causes. Estate planning considerations, including lifetime gifts and the transfer of vested stock options, play a crucial role in preserving wealth and minimizing tax liabilities.

Transitioning from a successful career to retirement can be exciting and daunting for executives. Planning for retirement involves forecasting complex benefits, managing investment portfolios and ensuring a smooth transition from the accumulation phase to the distribution phase of their financial life.

Comprehensive estate planning for executives includes strategies that address their income tax bracket, estate tax rates and various types of investments. Strategies such as wills, trusts, powers of attorney (POAs) and advance directives are central to protecting an executive’s assets and support building wealth.

A knowledgeable and experienced estate planning attorney is central to a holistic plan that meets an executive’s goals, including:

Reducing taxes and taxable estate values.
Transferring stock options and other nuanced investments to heirs.
Preserving or building their wealth.

Key Estate Planning Strategies For Executives:

Address Unique Challenges: Consider liquidity, stock options, estate taxes and beneficiaries.
Maximize Tax-Efficiency: Explore tax-efficient strategies to preserve wealth.
Build a Comprehensive Plan: Include wills, trusts, and POAs to address diverse financial needs and goals.
Define Personal Objectives: Define personal philosophies and objectives to create a comprehensive plan that aligns with your vision for the future.

Given the complexities of their careers and wealth management needs, executives face unique financial and estate planning challenges. Addressing key concerns and defining personal objectives helps executives secure a financial future for themselves and their families. If you would like to learn more about estate planning for wealthy couples and families, please visit our previous posts.

Reference: Central Trust Company (July 19, 2023) “Estate Planning For Executives”

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Use Qualified Disclaimer to Avoid Inheriting IRA

March 5, 2024

The rules governing inherited Individual Retirement Accounts (IRAs) have changed over the years. They have become even more complex since the passage of the original SECURE Act. The inheritor of an IRA may be required to empty the account and pay taxes on the resulting income within 10 years. In some situations, beneficiaries might choose to use a Qualified Disclaimer to avoid inheriting the IRA, according to a recent article, “How to Opt Out of Inheriting an IRA” from Think Advisor.

Paying taxes on the distributions could put a beneficiary into a higher tax bracket. In some situations, beneficiaries may want to execute a Qualified Disclaimer and avoid inheriting both the account and the tax consequences associated with the inheritance.

Individuals who use a Qualified Disclaimer are treated as if they never received the property at all. Of course, you don’t enjoy the benefits of the inheritance but don’t receive the tax bill.

Suppose the decedent’s estate is large enough to trigger the federal estate tax. In that case, generation-skipping transfer tax issues may come into play, depending on whether there are any contingent beneficiaries.

An experienced estate planning attorney is needed to ensure that the disclaimer satisfies all requirements and is treated as a Qualified Disclaimer. It must be in writing, and it must be irrevocable. It also needs to align with any state law requirements.

The person who wishes to disclaim the IRA must provide the IRA custodian or the plan administrator with written notice within nine months after the latter of two events: the original account owner’s death or the date the disclaiming party turns 21 years old. The disclaiming person must also execute the disclaimer before receiving the inherited IRA or any of the benefits associated with the property.

Once you use the qualified disclaimer to avoid inheriting the IRA, it must pass to the remaining beneficiaries without the disclaiming party’s involvement. The disclaiming party cannot directly decide who will receive their interests, such as directing the inherited IRA to go to their child. If the disclaiming party’s child is already named as a beneficiary, their interest will be received as intended by that child.

The person inheriting the account must execute the disclaimer before receiving any benefits from the account. Even electing to take distributions will prevent the disclaimer from being effective, even if the person has not received any funds.

In some cases, you may be able to disclaim a portion of the inherited IRA. However, these are specific cases requiring the experience of an estate planning attorney. If you would like to learn more about inherited IRAs, please visit our previous posts.

Reference: Think Advisor (Feb. 8, 2024) “How to Opt Out of Inheriting an IRA”

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Integrating Retirement Accounts into your Estate Plan

February 13, 2024

Retirement accounts, such as IRAs and 401(k)s, play a pivotal role in many estate plans. They are not just savings vehicles for retirement; they are also crucial assets that can be passed on to beneficiaries. An effective estate plan should integrate retirement accounts seamlessly, supporting your overall retirement and estate objectives.

When incorporating retirement accounts into an estate plan, it’s essential to understand the tax implications and the rules governing beneficiary designations. These factors can significantly impact how your retirement assets are distributed and taxed upon your death. Retirement accounts are subject to income tax and, in some cases, estate tax.

Retirement accounts, such as IRAs and 401(k)s, typically bypass the probate process, as they are transferred directly to the named beneficiaries. This direct transfer can simplify the estate settlement process and provide quicker access to funds for your beneficiaries. It’s important to understand that while retirement accounts may avoid probate, they are still part of your overall estate for tax purposes. Proper planning can help ensure that your retirement assets are distributed efficiently and tax-advantaged.

Roth IRAs are unique retirement accounts that offer tax-free growth and withdrawals. They can be a valuable tool in estate planning, particularly for those looking to leave tax-free assets to their beneficiaries. Unlike traditional IRAs, Roth IRAs do not require minimum distributions during the account owner’s lifetime, allowing the assets to grow tax-free for a longer period.

When including Roth IRAs in your estate plan, consider the potential tax benefits for your beneficiaries. Since distributions from Roth IRAs are generally tax-free, they can provide a significant financial advantage to your heirs. Tax-deferred retirement accounts, like traditional IRAs and 401(k)s, allow contributions to grow tax-free until withdrawal. This feature can lead to significant tax savings over time. However, it’s essential to consider the tax implications for your beneficiaries.

Beneficiary designations are a critical aspect of retirement planning. These designations determine who will inherit your retirement accounts upon your death. It’s crucial to regularly review and update your beneficiary designations to ensure that they align with your current estate plan and wishes. Failure to update beneficiary designations can lead to unintended consequences, such as an ex-spouse or a deceased individual being named as the beneficiary. Beneficiaries are generally subject to income tax on the distributions upon inheriting a tax-deferred retirement account. Planning for these tax implications is crucial in ensuring that your beneficiaries are not burdened with unexpected taxes.

Retirement assets are considered part of your estate and can impact your overall estate value and tax liability. Properly integrating retirement accounts into your estate plan can help achieve a balanced and tax-efficient distribution of your entire estate. This includes considering the impact on federal and state estate taxes and the income tax implications for your beneficiaries.

In conclusion, integrating retirement accounts into your estate plan is a complex but essential task. Understanding the nuances of how these accounts work in the context of estate and tax planning can ensure that your financial legacy is preserved and passed on according to your wishes. Consultation with financial and legal professionals is key to navigating this intricate aspect of estate planning effectively. If you would like to learn more about retirement accounts, please visit our previous posts.

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Seniors are missing out on Tax Deductions

December 27, 2023

Many seniors are missing out on tax deductions and tax savings, according to a recent article from The Wall Street Journal, “Four Lucrative Tax Deductions That Seniors Often Overlook.” The tax code is complicated, and changes are frequent.

Since 2017, there have been several major tax changes, including the Tax Cuts and Jobs Act, the pandemic-era Cares Act and the climate and healthcare package known as the Inflation Reduction Act. Those are just three—there’s been more. Unless you’re a tax expert, chances are you won’t know about the possibilities. However, these four could be very helpful for seniors, especially those living on fixed incomes.

The IRS does offer a community-based program, Tax Counseling for the Elderly. This community-based program includes free tax return preparation for seniors aged 60 and over in low to moderate-income brackets. However, not everyone knows about this program or feels comfortable with an IRS-run tax program.

Here are four overlooked tax deductions for seniors:

Extra standard deduction. Millions of Americans take the standard deduction—a flat dollar amount determined by the IRS, which reduces taxable income—instead of itemizing deductions like mortgage interest and charitable deductions on the 1040 tax form.

In the 2023 tax year, seniors who are 65 or over or blind and meet certain qualifications are eligible for an extra standard deduction in addition to the regular deduction.

The extra standard deduction for seniors for 2023 is $1,850 for single filers or those who file as head of household and $3,000 for married couples, if each spouse is 65 or over filing jointly. This boosts the total standard deduction for single filers and married filing jointly to $15,700 and $30,700, respectively.

IRA contributions by a spouse. Did you know you can contribute earned income to a nonworking or low-earning spouse’s IRA if you file a joint tax return as a married couple? These are known as spousal IRAs and are treated just like traditional IRAs, reducing pretax income. They are not joint accounts—the individual spouse owns each IRA, and you can’t do this with a Roth IRA. There are specific guidelines, such as the working spouse must earn at least as much money as they contributed to both of the couple’s IRAs.

Qualified charitable distributions. Seniors who make charitable donations by taking money from their bank account or traditional IRA and then writing a check from their bank account is a common tax mistake. It is better to use a qualified charitable deduction, or QCD, which lets seniors age 70 ½ and older transfer up to $100,000 directly from a traditional IRA to a charity tax-free. Married couples filing jointly can donate $200,000 annually, and neither can contribute more than $100,000.

The contributions must be made to a qualified 501(c)(3) charity. The donation can’t be from Donor-Advised Funds. This is a great option when you need to take the annual withdrawal, known as a Required Minimum Distribution or RMD, and don’t need the money.

Medicare premium deduction. A self-employed retiree can deduct Medicare premiums even if they don’t itemize. This includes Medicare Part B and D, plus the cost of supplemental Medigap policies or a Medicare Advantage plan. The IRS considers self-employed people who own a business as a sole proprietor (Schedule C), partner (Schedule E), limited liability company member, or S corporation shareholder with at least 2% of the company stock.

Remember, you must have business income to qualify, since you can deduct premiums by only as much as you earn from your business. You also can’t claim the deduction if your health insurance is covered by a retiree medical plan hosted by a former employer or your spouse’s employer’s medical plan.

Seniors should consult with an estate planning attorney make sure they are not missing out on possible tax deductions. If you would like to learn more about tax planning, please visit our previous posts.

Reference: The Wall Street Journal (Nov. 29, 2023) “Four Lucrative Tax Deductions That Seniors Often Overlook”

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What You Should Know about Inherited IRAs

October 16, 2023

Here’s what you should know about inherited IRAs. Inheriting an Inherited IRA can be even more complicated than the already complex world of inherited Individual Retirement Accounts (IRAs). Understanding the rules and regulations about inheriting an inherited IRA is critical to avoid major tax pitfalls, according to a recent article from yahoo! finance, “What Happens When I inherit an Annuity?”

After the passage of the SECURE Act, the rules concerning inherited IRAs became quite restrictive. Working with an estate planning attorney knowledgeable about IRAs can be the difference between a healthy inheritance or an unexpected huge tax liability.

An inherited IRA is an IRA left to a beneficiary following the death of the original account owner. The beneficiary who inherits the IRA can pass it to a successor beneficiary upon death. This creates the “inheriting an inherited IRA” scenario.

If the line of succession is not set up correctly, there is the potential for inherited assets to go through probate for a judge to rule on the rightful owner.

The original beneficiary is the first person to inherit the IRA. Once they have inherited the account, they may name their successor beneficiary. There are rules for the original beneficiary and the successor beneficiary.

The SECURE Act changed the timeline for inherited IRAs. It eliminated the “stretch” IRA strategy, which allowed beneficiaries to take distributions over their lifetime, stretching out the tax-deferred growth of the IRA over decades. Now, most non-spouse beneficiaries must withdraw all assets from an inherited IRA within ten (10) years of the original account holder’s death. This change presents new implications with regard to taxes, especially if the beneficiary is in their peak earning years.

Inheriting an inherited IRA can involve complex tax rules and pitfalls. There are timelines for taking required withdrawals and zero flexibility for mistakes.

You’ll also need to be sure the inheritance is documented correctly to avoid potential probate.

The rules differ for spouses inheriting an IRA since they shared assets with their deceased spouse. The SECURE Act allows spouses to treat the IRA as their own, providing more flexibility in distributions and potential tax implications.

Understanding the concept of Year of Death Required Distributions is essential. Let’s say the original owner was over a certain age at death. In this situation, a Required Minimum Distribution (RMD) may need to be taken in the year of death, which could impact the heir’s taxes for that year.

Knowing potential tax breaks related to inherited IRAs will also help with financial management. Non-spouse beneficiaries can deduct the estate tax paid on IRA assets when calculating their income tax.

These are complex issues requiring the help of an experienced estate planning attorney. Ideally, the attorney will help you understand what you should know about inherited IRAs. This conversation should occur while creating or revising your estate plan. If you would like to learn more about IRAs, please visit our previous posts.

Reference: yahoo! finance (Sep. 5, 2023) “What Happens When I inherit an Annuity?”

Review Beneficiary Designations after Life Changes

June 29, 2023

Beneficiary designations guarantee that certain assets are transferred efficiently at a person’s passing. Assets with designated beneficiaries transfer automatically to the named beneficiary, no matter what’s in the original asset owner’s will or trust document instructions. It is vital that you review beneficiary designations after major life changes, such as a marriage, birth or death.

Inside Indiana Business’s recent article, “Who are your beneficiaries?” explains that because the new owner is determined without the guidance of a will document, assets with designated beneficiaries are excluded from the decedent’s probate estate. The fewer assets subject to probate, the less cost and time associated with settling the estate.

Many different types of assets transfer via beneficiary designation at the death of the original owner. These include retirement accounts (IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, pensions, etc.), life insurance death benefits and the residual value of annuities. Bank and brokerage accounts can also be made payable on death (POD) or transferable on death (TOD) to a named beneficiary, if desired. POD and TOD designations bypass probate–like beneficiary designations.

The owners can name both primary and contingent beneficiaries. The primary beneficiary is the first in line to inherit the asset. However, if the primary beneficiary predeceases the owner, the contingent beneficiary becomes the new owner. If there’s no contingent beneficiary listed, the asset transfers to the owner’s estate for distribution. There’s no restriction on the number of beneficiaries who can inherit an asset.

Charities can also be beneficiaries of assets. Because a charity doesn’t pay income tax, leaving a taxable retirement account or annuity to a charity will let 100% of the value go toward the charity’s mission. When an individual inherits, income tax may be due when the funds are distributed.

A trust can also be named beneficiary of an asset. This strategy is often employed when minors or those with disabilities are beneficiaries. Designating a trust as a beneficiary can be complex, so do so with the advice of an experienced estate planning attorney.

Simply naming an estate as a beneficiary is typically not a good strategy because this will subject the asset to probate, which can result in unfavorable income tax outcomes for retirement accounts.

When no beneficiaries are named, the owner’s estate will likely become the default, which leads to probate.

Take time to review your current beneficiary designations to be sure they reflect current wishes. Review these beneficiary designations every five years or after major life changes (marriage, birth, divorce, death).

Whenever you name or change a beneficiary, verify that the account custodian or insurance company correctly recorded the information because errors are problematic, if not impossible, to correct after your death. If you would like to learn more about beneficiaries, please visit our previous posts.

Reference: Inside Indiana Business (June 5, 2023) “Who are your beneficiaries?”

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Blended Families face Unique Planning Decisions

May 16, 2023

Blended families are now nearly as common as traditional families. Blended families face unique estate planning decisions, says a recent article, “Considerations For Financial And Estate Planning Professionals Who Work With Blended Families” from Forbes.

Estate planning starts with a will. Naming an impartial executor may require more consideration than in traditional families where the eldest child is the likely candidate. The will also needs to nominate a guardian for minor children and appoint a power of attorney and healthcare proxy in case of incapacity. Traditional wills used to provide instructions for asset distribution may have limitations regarding blended families. Trusts may provide more control for asset distribution.

Wills don’t dictate beneficiaries for life insurance policies, retirement plans, or jointly owned property. However, wills are also subject to probate, which can become a long and costly process that opens the door for wills to be challenged in court.

Wills also become public documents once they are entered into probate. Any interested party may request access to the will, which may contain information the family would prefer to have private.

Trusts allow greater control over how assets are managed and distributed. Their contents remain private. There are many different types of trusts used to accomplish specific goals. For instance, a Qualified Terminal Interest Property Trust (QTIP) can provide income for a surviving spouse, while passing the rest of the assets to a client’s children or grandchildren.

Another type of trust is designed to skip a generation and distribute trust assets to grandchildren or those at least 37.5 years younger than the grantor. Some may choose to use this Generation-Skipping Trust (GST) to keep wealth in the family, by bypassing children who have married.

An IRA legacy trust can be the beneficiary of an IRA instead of family members. This option lets owners maintain creditor protection only sometimes afforded to one who inherits an IRA. The account owner may also want to use an IRA’s required minimum distributions (RMDs) to benefit a second spouse during their lifetime and leave the remainder to their children.

Couples entering a second or third marriage need to be transparent about their expectations of what each spouse will receive upon their death or in the event of divorce and whether or not they agree to waive their right to contest these commitments. A prenuptial agreement is a legal contract spelling out the terms before marriage. For example, in some instances, the prenup requires each spouse to maintain life insurance on the other to ensure liquidity, either from the policy’s death benefit or its cash value.

A final consideration is ensuring that all documentation created is easy to understand, clear and concise. Blended families face unique estate planning decisions. Make sure to spell out the full names of beneficiaries for wills, trusts and life insurance, and include their birthdates, so it is easy to identify them and they cannot be confused with someone else. Estate planning is an ongoing process requiring review regularly to keep the estate plan consistent with the family’s evolving needs and goals. If you would like to learn more about planning for blended families, please visit our previous posts.

Reference: Forbes (April 19, 2023) “Considerations For Financial And Estate Planning Professionals Who Work With Blended Families”

Category: IRA

Proper Estate Planning can Protect Couples with Big Age Gaps

Understanding Primary and Contingent Beneficiaries is essential for Estate Planning

Charitable Remainder Trusts may be Solution to Stretch IRA loss

Key Estate Planning Strategies for Executives

Use Qualified Disclaimer to Avoid Inheriting IRA

Integrating Retirement Accounts into your Estate Plan

Seniors are missing out on Tax Deductions

What You Should Know about Inherited IRAs

Review Beneficiary Designations after Life Changes

Blended Families face Unique Planning Decisions

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