Remarriage can create numerous estate planning concerns, especially when you need to provide for both your current spouse and your children from a previous marriage. When you die, things could get extremely complicated. If this is the case, you need to take positive steps now to ensure that your estate is distributed according to your wishes.
Eliminate the money connection
Rather than making your children's inheritance contingent on your spouse's death or effectively giving one party control over the financial affairs of the other, consider eliminating the economic connection between your surviving spouse and your children. A plan where your children's inheritance is not dependent on your spouse's actions (or vice versa) is bound to be more satisfactory to all involved.
Leverage life insurance
You can make your children beneficiaries of a life insurance policy that you own. Or your children can purchase insurance policies on your life and you can make a gift to them of the money to pay the premiums. Or you can establish an irrevocable trust to hold life insurance purchased for their benefit. In any case, your children are the beneficiaries of the life insurance policy, and you are guaranteed they will receive a certain amount of money when you die.
Name your children as beneficiaries on your retirement plan
Making your children the beneficiaries of your IRA or qualified retirement plan is another way to provide for their needs after your death. You may need your spouse's written consent if you wish to name anyone other than them as the beneficiary of your retirement plans. Even when you have this consent, however, your problems still may not be solved. The distribution rules for nonspouse beneficiaries can be extremely complex.
Leave your surviving spouse a lump sum
Consider leaving your surviving spouse a lump sum and dividing the remainder of your assets among your children. Or leave each of your children a lump sum and have the remainder pass to your surviving spouse. While this seems like a simple approach, there are instances when it can be very effective, especially if you have a small estate and few assets.
If you choose this option, make sure you have an accurate estimate of your estate tax liability and other expenses. Otherwise, the remainder of your assets will be less than you anticipate.
Choosing the most appropriate strategies
Some of these options are relatively simple to implement, while others are more complex. That’s why in most cases, you should work with an attorney or estate planning professional, in collaboration with your financial advisor, if investment assets are involved, to make sure you’re don’t make any costly mistakes.
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Joelle Spear is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or jspear@canbyfinancial.com
Prepared by Broadridge Investor Communication Solutions, Inc. and Canby Financial Advisors. Copyright 2022. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances.