Do I Have to Give My Husband’s Children from First Marriage Anything When He Dies?”

This is a common question with second (or third marriages) and blended families. Questions frequently arise about Social Security, investments and savings, when the husband is divorced from the children’s mother and is paying child support until each child turns 18.

Nj.com’s recent article entitled “Are my husband’s kids from another marriage due assets when he dies?” says that these questions demonstrate why estate planning is critical to revisit after a divorce. You can take action to make certain that you’re taken care of, but if you don’t do this at the time of the divorce, it could be too late.

Let’s look at what you should know about beneficiaries and wills. First, beneficiary designations supersede a will. Make sure that all beneficiaries and contingent beneficiaries are consistent with your wishes. There are beneficiary designations on retirement accounts, pensions, life insurance policies, annuities and other accounts that take precedence over what may be stated in a will.

While New Jersey does not provide for beneficiary designations on certain assets like a house, vehicles, and real estate, many other states do. For assets without a beneficiary, it’s important to determine the way in which they’re titled.

The titling of assets has an effect on how the assets will be distributed after death. Thus, when married again, spouses should review and update their wills to have an idea of how a spouse’s estate would be disbursed at his or her death.

If a husband is paying child support, divorce decrees will often dictate that he purchase life insurance to cover that obligation upon his death. Therefore, there may be a life insurance policy for the children from a first marriage.

With Social Security, if a spouse remains unmarried after the spouse’s death, he or she can claim a survivor spousal benefit as early as age 60, and if he or she is caring for the spouse’s children from the first marriage who are under 16 years of age, he or she may be entitled to receive a payment earlier. The deceased spouse’s unmarried children can also claim a survivor benefit until age 18, or longer if in high school or disabled.

Reference: nj.com (Aug. 4, 2021) “Are my husband’s kids from another marriage due assets when he dies?”

Can You Have Bitcoin in IRA?

Experts on both sides of the cryptocurrency world agree on one thing: it’s still early to put these kinds of investments into retirement accounts, especially IRAs. A recent article from CNBC, “Want to put bitcoin in your IRA? Why experts say you may want to rethink that, explains why this temptation should be put on pause for a while.

Investors who have remained on the sidelines on cryptocurrency are taking a second look as this new asset class surpassed the $2 trillion mark in late August. Looking at retirement accounts flush with positive growth from stocks, it seems like a good time to take some gains and test the crypto waters.

However, the pros warn against using cryptocurrency in retirement accounts. “Not just yet” is the message from both bulls and bears. One expert says using cryptocurrency in a retirement account is like taking a delicate and exotic animal out of its natural element and putting it in a concrete zoo. Cryptocurrency is not like “regular” money.

The accounts are structured differently The average investor also won’t be able to hold the keys to their own cryptocurrency investment. It’s a buy and hold, with no individual ability to move the assets around. While there are some investment platforms working to change that, an inability to move assets, especially such volatile assets, is not for everyone.

Cryptocurrency is a much riskier investment. A quarterly look at account updates would be like only checking your retirement accounts every five years. Cryptocurrency values are volatile, and an account balance can change dramatically from one week, one day or even one hour to the next one. Crypto is a 24/7/365-day market.

Self-directed IRAs are allowed to have crypto assets, but just because you can doesn’t mean you should. Another reason: stocks, bonds and real estate have a stated market value, which means they are taxed when withdrawals are taken. However, the expected value of cryptocurrencies is not clear. They are not regulated, while IRAs are among the most highly regulated accounts. This is a big reason as to why most IRA account administrators don’t permit cryptocurrencies in their accounts.

Investment decisions are based on the eventual use of the funds. For IRAs, the intention is not to lose money, and ideally for it to grow, so there is more money for your retirement, not less. Separate margin or trading accounts are typically used for riskier investments.

One expert advised limiting cryptocurrency investments to 5% of your total retirement accounts. If money is lost, it won’t destroy your retirement, and any wins are extra money. Another expert says investing such a small amount won’t be worth the time or effort, so don’t even bother.

For those who are determined to get in the game, a Roth IRA may be preferable if you have an extended time horizon and can stand the ups and downs of cryptocurrency investments. The appreciation in a Roth IRA will be tax-free.

Reference: CNBC (Aug. 17, 2021) “Want to put bitcoin in your IRA? Why experts say you may want to rethink that

What Kind of Trust Is Right for You?

Everyone wins when estate planning attorneys, financial advisors and accounting professionals work together on a comprehensive estate plan. Each of these professionals can provide their insights when helping you make decisions in their area. Guiding you to the best possible options tends to happen when everyone is on the same page, says a recent article “Choosing Between Revocable and Irrevocable Trusts” from U.S. News & World Report.

What is a trust and what do trusts accomplish? Trusts are not just for the wealthy. Many families use trusts to serve different goals, from controlling distributions of assets over generations to protecting family wealth from estate and inheritance taxes.

There are two basic kinds of trust. There are also many specialized trusts in each of the two categories: the revocable trust and the irrevocable trust. The first can be revoked or changed by the trust’s creator, known as the “grantor.” The second is difficult and in some instances and impossible to change, without the complete consent of the trust’s beneficiaries.

There are pros and cons for each type of trust.

Let’s start with the revocable trust, which is also referred to as a living trust. The grantor can make changes to the trust at any time, from removing assets or beneficiaries to shutting down the trust entirely. When the grantor dies, the trust becomes irrevocable. Revocable trusts are often used to pass assets to adult children, with a trustee named to manage the trust’s assets until the trust documents direct the trustee to distribute assets. Some people use a revocable trust to prevent their children from accessing wealth too early in their lives, or to protect assets from spendthrift children with creditor problems.

Irrevocable trusts are just as they sound: they can’t be amended once established. The terms of the trust cannot be changed, and the grantor gives up any control or legal right to the assets, which are owned by the trust.

Giving up control comes with the benefit that assets placed in the trust are no longer part of the grantor’s estate and are not subject to estate taxes. Creditors, including nursing homes and Medicaid, are also prevented from accessing assets in an irrevocable trust.

Irrevocable trusts were once used by people in high-risk professions to protect their assets from lawsuits. Irrevocable trusts are used to divest assets from estates, so people can become eligible for Medicaid or veteran benefits.

The revocable trust protects the grantor’s wishes, if the grantor becomes incapacitated. It also avoids probate, since the trust becomes irrevocable upon death and assets are outside of the probated estate. The revocable trust may include qualified assets, like IRAs, 401(k)s and 403(b)s.

However, there are drawbacks. The revocable trust does not provide tax benefits or creditor protection while the grantor is living.

Your estate planning attorney will know which type of trust is best for your situation, and working with your financial advisor and accountant, will be able to create the plan that minimizes taxes and maximizes wealth transfers for your heirs.

Reference: U.S. News & World Report (Aug. 26, 2021) “Choosing Between Revocable and Irrevocable Trusts”

What Should Same-Sex Couples Know about Estate Planning?

Proper estate planning can help ensure that your wishes are carried out exactly as intended in the event of a death or a serious illness, says Insurance Net News’ recent article entitled “What Same-Sex Partners Need to Know About Estate Planning.” Having a clearly stated plan in place can give clear instructions and potentially avoid any fights that otherwise might occur. For same-sex couples, this may be even more crucial.

Your estate plan should include a will or trust, beneficiary forms, powers of attorney, a living will and a letter of intent. It’s also smart to include a secure document with a list of your accounts, debts, assets and contact info for any key people involved in those accounts. This list should contain passwords for locked accounts and any other relevant information.

A will is a central component of an estate plan which ensures that your wishes are followed after you pass away. This alleviates your family from the responsibility of determining how to divide your property and takes the guessing and stress out of how to pass along belongings. A will or trust might also state the way in which to transfer your financial assets to your children. You should also make sure your beneficiary forms are up to date with your spouse for life insurance policies, bank accounts and retirement accounts.

For same-sex couples, it is particularly important to create a clear medical power of attorney and create a living will that states your medical directives, if you aren’t able to make those decisions on your own. If you aren’t married, this will give your partner the legal protection he or she needs to make those decisions. It is important for you to take time to have those conversations with your partner, so the plans and directives are clear. You can also draft a letter of intent, which is a written, personal note that can be included to help detail your wishes and provide reasoning for the decisions.

Protecting Your Minor Children. Name a legal guardian for them in your will, in the event both parents die. Same-sex couples must make sure that both parents have equal rights, especially in a case where one parent is the biological parent. If the surviving spouse or partner isn’t the biological parent and hasn’t legally adopted the children, don’t assume they’ll automatically be named guardian.  These laws vary from state to state.

Dissolve Old Unions. There could be challenges, if you entered into a civil union or domestic partnership before your marriage was legalized. Prior to the 2015 marriage equality ruling, some same-sex couples married in states where it was legal but resided in states where the marriage wasn’t recognized. If you and your partner broke up, but didn’t legally dissolve the union, it may still be legally binding. Moreover, some states converted civil unions and domestic partnerships to legal marriages, so you and a former partner could be legally married without knowing it. If a former union wasn’t with your current partner, make certain that you legally unbind yourself to avoid any future disputes on your estate.

Review Your Real Estate Documents. Check your real estate documents to confirm that both partners are listed and have equal rights to home ownership, especially if the home was purchased prior to the legalization of same-sex marriage or if you aren’t married. There are a few ways to split ownership of their property. This includes tenants in common, where both partners share ownership of the property, but allows each individual to leave their shares to another person in their will. There’s also joint tenants with rights to survivorship. This is when both partners are property owners but if one dies, the remaining partner retains sole ownership.

Estate planning can be a complex process, and same-sex couples may have more stress to make certain that they have a legally binding plan. Talk to an experienced estate planning attorney about the estate planning process to put a solid plan to help provide peace of mind knowing your family is protected.

Reference: Insurance Net News (June 30, 2021) “What Same-Sex Partners Need to Know About Estate Planning”

What Happens If You Don’t Name Beneficiaries?

It’s always good to check into your retirement accounts and consider if you are saving enough and if your investments are properly balanced. However, what’s just as important is whether you’ve reviewed named beneficiaries for these and other accounts. The recommendation comes from the article titled “Review your IRA, 401(k) beneficiaries” from Idaho State Business Journal, and it’s sound advice.

In more cases than you might think, people overlook this detail, and their loved ones are left with the consequences. After all, you opened those accounts long ago, and who even remembers? Does it really matter?

In a word, yes. What if your family circumstances have changed since you named a beneficiary? If divorce and remarriage occurred, do you want your former spouse to receive your IRA, 401(k) and life insurance proceeds?

It’s important to understand that beneficiary designations supersede anything in your last will and testament. Therefore, while you’ve been dutifully updating your estate plans whenever life changes occur and neglecting beneficiary designations, your ex or someone else who is no longer in your life could receive a surprise windfall.

Here’s another detail often overlooked: retirement plans, and insurance policies may need more than one beneficiary. Any time there is an opportunity to name a contingent beneficiary, take advantage of it. If the primary beneficiary dies or refuses the inheritance and there is no contingent or secondary beneficiary, the proceeds could end up back into your estate. Depending on the laws of your state, they might end up being taxable, in addition to not going to your intended heir.

This is an easy thing to fix, but it takes diligence and in some cases, a fair amount of time.

Start by gathering information on all your accounts, including retirement, checking and savings accounts, 401(k)s, pension plans, insurance policies and any accounts containing assets you want to pass to loved ones. If you see anything incorrect or outdated, immediately contact the financial institution, your company’s benefits manager or your insurance representative to request a change-of-beneficiary form.

Once you receive the form, immediately address making the changes. Request a printed confirmation from the financial organization to confirm the change has been made. Don’t accept a verbal acknowledgement by a call center employee—this is too important to leave to chance.

To be on the safe side, it would be wise to have your estate planning attorney work with you on documenting your beneficiary designations as part of your estate plan. You may also pick up some smart pointers on other suggestions for dealing with beneficiaries.

For example, children are not permitted to control assets until they reach the age of majority. But when most children reach age 18 or 21, they are not ready to manage substantial sums of money. Your will names a guardian for minor children, but it is also wise to create a trust for the benefit of a minor that controls when distributions are made when they are older.

Most people want to leave something behind for those they love. Make sure to do it in the right way—including paying attention to beneficiary designations.

Reference: Idaho State Business Journal (July 27, 2021) “Review your IRA, 401(k) beneficiaries”

Key Dates for Planning Retirement

Just as there are many types of retirement benefits, there are many dates to keep in mind when creating a retirement plan. Some concern when you can make larger contributions to retirement accounts and others have to do with withdrawals. Knowing the dates for each matters to your retirement planning, according to the recent article title “10 Important Ages for Retirement Planning” from U.S. News & World Report.

When should you max out retirement savings contributions? The sooner you start saving for retirement, the more likely you’ll retire with robust tax-deferred accounts. Tax breaks and employer matches add up, as do compounding interest returns. The 401(k) contribution limit in 2021 is $19,500. Wage earners can deposit up to $6,000 in a traditional IRA or Roth IRA. If you’re in your peak earning years, traditional IRAs and 401(k)s may be better, since your tax bracket is likely higher to be higher than when you started out.

Catch-up contributions begin at age 50. Once you’ve turned 50, you can make catch up contributions to 401(k)s—up to $6,500—and up to $7,000 in traditional IRAs. That’s for 2021. If you’re able to take advantage of these contributions, you can put away additional money and qualify for even bigger tax deductions.

401(k) withdrawals could start at 55. If you left your job in the same year you hit the double nickel, you can take 401(k) withdrawals penalty-free from the account associated with your most recent job. The “Rule of 55” lets you avoid a 10% early penalty, but you’ll still have to pay income taxes on any withdrawals from a 401(k) account. However, if you roll a 401(k) account balance into an IRA, you’ll need to wait until age 59½ to take IRA withdrawals without any penalties.

When does the IRA retirement age begin? The magic number is 59½. However, traditional IRA distributions are not required until age 72. All traditional IRA withdrawals are also taxable.

Social Security eligibility begins at age 62. The earlier you start collecting Social Security, the smaller your monthly benefit. Your full retirement age depends upon your date of birth, when the benefit amount will be higher than at age 62. If you work after signing up for Social Security, your benefits could be temporarily withheld if your salary is higher than the annual earnings limit. If you retire before your full retirement age and earn more than $18,960 per year, for every $2 above this amount, your benefits will be reduced by $1. Benefits will be recalculated once you reach full retirement age.

Medicare eligibility begins at age 65. Enrollment in Medicare may take place during a seven-month period that begins three months before the month you turn 65. Signing up on time matters, because Medicare Part B premiums increase by 10% for every 12-month period you were eligible for benefits but failed to enroll. Are you delaying enrollment because you or your spouse is still covered by a group health plan at work? Make sure to sign up within eight months of leaving your job or health plan and avoid the penalty.

Social Security Full Retirement Age is 66 for most Baby Boomers. 67 is the full retirement age for workers born in 1960 or later. Millennials and younger generations qualify after age 67.

If you can wait until 70, you’ll max out on Social Security. Social Security benefits increase by 8% for each year you wait to start payments between Full Retirement Age and age 70. After age 70, the number remains the same.

RMDs begin for 401(k) and IRA retirement accounts at age 72. These mistakes here are expensive! Your first distribution must be taken by April 1 of the year you turn 72. After that, annual withdrawals from 401(k)s and traditional IRAs must be taken by December 31 of each year. Missing a required distribution and you’ll get hit with a nasty 50% of the amount that you should have withdrawn.

Reference: U.S. News & World Report (July 28, 2021) “10 Important Ages for Retirement Planning”

How Do You Split Estate in a Blended Family?

When it comes to blended families and estate planning, there are no guarantees, especially concerning estate planning. However, there are some classic mistakes to avoid, reports this recent article from AARP titled “Remarried With Children? 5 Estate Planning Mistakes to Avoid.”

Most people mean well. They want to protect their spouses and hope that their heirs will share in any proceeds when the second spouse dies. They want all the children to be happy. They also hope that the step siblings will still regard each other as “siblings” after the parents are passed. However, there are situations where children get shut out of their inheritance or an ex-spouse inherits it all, even if that wasn’t the plan. Here are five mistakes to avoid:

#1: Not changing named beneficiaries. People neglect to update their wills and beneficiary designations. This is something to do immediately, before or after the wedding. By changing the name of the beneficiary on your 401(k), for instance, it passes directly to the surviving spouse without probate. All financial accounts should be checked, as should life insurance beneficiaries. You can designate children as secondary beneficiaries, so they receive assets, in the event that both parents die.

While you’re doing that, update legal directives: including the medical power of attorney and the power of attorney. That is, unless you’d like your ex to make medical and financial decisions for you!

#2 Not updating your will. Most assets pass through the will, unless you have planned otherwise. In many second marriages, estate planning is done hoping the spouse inherits all the assets and upon their death, the remaining assets are divided among all of the children. There is nothing stopping a surviving spouse from re-writing their will and for the late spouses’ children to be left without anything from their biological parent. An estate planning attorney can explore different options to avoid this from occurring.

#3 Treating all heirs equally. Yes, this is a mistake. If one person came to the marriage with significantly more assets than another, care must be taken if the goal is to have those assets remain in the bloodline. If one person owned the house, for instance, and a second spouse and children moved into the house, the wish might be to have only the original homeowner’s children inherit the proceeds of the sale of the house. The same goes for pension and retirement accounts.

#4 Waiting to give until you’ve passed. If you are able to, it may be worth gifting to your heirs while you are still living, rather than gifting through a will. You may give up to $15,000 per person or $30,000 to a couple without having to pay a federal gift tax. Recipients don’t pay tax on most gifts. Let’s say you and your spouse have four children and they are all married. You may give each child and their spouse $30,000, without triggering any taxes for you or for them. It gets better: your spouse can also make the same size gift. Therefore, you and your spouse can give $60,000 to each couple, a total of $240,000 per year for all eight people and no taxes need be paid by anyone. This takes assets out of your estate and is not considered income to the recipients.

#5 Doing it yourself. If you’re older with a second marriage, ex-spouses, blended families and comingled assets, your estate planning will be complicated. Add a child with special needs or an aging parent and it becomes even more complex. Trying to create your own estate plan without a current and thorough knowledge of the law (including tax law) is looking for trouble, which is what you will leave to your children. The services of an estate planning attorney are a worthwhile investment, especially for blended families.

Reference: AARP (July 9, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”

Make the Most of a Roth IRA, Even If You’re Not Ultra-Wealthy

While it may seem like only the ultra-wealthy benefit from a Roth IRA, this retirement tool is an excellent tax shelter that anyone can use, reports CNBC.com in the recent article “The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same.” One of PayPal’s founders, Peter Thiel, had $5 billion in a Roth IRA as of 2019, according to a ProPublica report. It said that he used a self-directed Roth account, which allows the owner to hold alternative assets, like shares in a private company or real estate that generally can’t be placed in a regular Roth.

Traditional 401(k) plans and IRAs offer a tax break, when contributions are made. Taxes are paid upon withdrawal, which is supposed to happen only after a certain age when you’ve retired. By contrast, the Roth versions of the 401(k) and IRA don’t have the tax break up front—you have to pay taxes on the money or assets when making contributions—but there are no taxes paid upon withdrawal, and there are no required withdrawals, as there are with traditional IRAs and 401(k)s.

You pay income taxes on the money placed into the account, and then it grows tax free. You can take it out anytime, as long as the account has been owned for at least five years and you are age 59½ or older. Self-directed Roth IRAs permit tax-free growth and untaxed distributions plus investments can be made that are not available in regular Roth accounts.

Theil had private company shares in his self-directed Roth IRA, before PayPal was a publicly traded company. He benefited from both timing and savvy investment skills.

Self-directed IRAs are generally available only through specialized custodians. Brand-name financial companies don’t offer them. The custodians that hold self-directed IRAs do not manage the account or police what investments are placed into the accounts, so you’ll need the advice of a tax-savvy estate planning attorney to be sure you are following the rules. Note that there can also be valuation issues. The value of alternative assets is not as clear as publicly traded securities. You’ll need to get the value right, so you don’t break any tax laws. Once assets are in the account, you can sell them and use the proceeds to purchase other instruments in the account, all under the same tax-free Roth protection.

Even if you don’t use a self-directed Roth IRA, the standard Roth IRA yields many benefits. We don’t know what the future tax environment will be, but tax-free withdrawals in the future, combined with high-growth assets, make the Roth IRA a good choice for retirement nest eggs.

Reference: CNBC.com (June 24, 2021) “The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same”

Does a Prenup Make Sense?

Take the time to think about your financial plans before you get married to help set you on the right path. chase.com’s recent article entitled “How to prepare your finances for marriage” explains that a prenuptial agreement sets out each prospective spouse’s rights and responsibilities, if one spouse dies or the couple gets divorced.

This is a guide for dividing and distributing assets. A prenuptial agreement can also be a valuable tool for planning since it will take priority over presumptions about what’s deemed community property, separate property, and marital property. A prenup can also prevent one spouse from being responsible for premarital debts of the other in the event of death or divorce.

A prenup is used frequently when one spouse or one spouse’s family is significantly wealthier than the other; or when one family owns a business and wants to make sure only family members can own and manage it.

Negotiate a prenuptial agreement early. If you know that you want to have your fiancé to sign a prenuptial agreement, do it ASAP because some courts have found a prenup invalid because it was entered into under duress and signed and negotiated right before the wedding.

Examine employee benefits. Make certain that you understand know how marriage will impact your employee benefits, especially if you and your spouse are working. See what would be less expensive, and if one offers significantly better coverage. Marriage almost always is a life event that permits you to modify your benefits elections outside of annual open enrollment.

Review beneficiary designations and estate planning documents. It’s common for young people prior to marriage to name their parents or siblings as beneficiary of accounts, like IRAs, 401(k)s, life insurance and transfer on death (TOD) and payable on death (POD) accounts. Review these designations and accounts and, if needed, change your beneficiary to your new spouse after the wedding. You should also be sure you to update your estate planning documents, including wills, health care designations, powers of attorneys and others, to reflect your new situation.

Communication is critical. Start your marriage with strong communication to help you better face future challenges together.

Reference: chase.com (May 25, 2021) “How to prepare your finances for marriage”

What are Top ‘To-Dos’ in Estate Planning?

Spotlight News’ recent article entitled “Estate Planning To-Dos” says that with the potential for substantial changes to estate and gift tax rules under the Biden administration, this may be an opportune time to create or review our estate plan. If you are not sure where to begin, look at these to-dos for an estate plan.

See an experienced estate planning attorney to discuss your plans. The biggest estate planning mistake is having no plan whatsoever. The top triggers for estate planning conversations can be life-altering events, such as a car accident or health crisis. If you already have a plan in place, visit your estate planning attorney and keep it up to date with the changes in your life.

Draft financial and healthcare powers of attorney. Estate plans contain multiple pieces that may overlap, including long-term care plans and powers of attorney. These say who has decision-making power in the event of a medical emergency.

Draft a healthcare directive. Living wills and other advance directives are written to provide legal instructions describing your preferences for medical care, if you are unable to make decisions for yourself. Advance care planning is a process that includes quality of life decisions and palliative and hospice care.

Make a will. A will is one of the foundational aspects of estate planning, However, this is frequently the only thing people do when estate planning. A huge misconception about estate planning is that a will can oversee the distribution of all assets. A will is a necessity, but you should think about estate plans holistically—as more than just a will. For example, a modern aspect of financial planning that can be overlooked in wills and estate plans is digital assets.  It is also recommended that you ask an experienced estate planning attorney about whether a trust fits into your circumstances, and to help you with the other parts of a complete estate plan.

Review beneficiary designations. Retirement plans, life insurance, pensions and annuities are independent of the will and require beneficiary designations. One of the biggest estate planning mistakes is having outdated beneficiary designations, which only supports the need to review estate plans and designated beneficiaries with an experienced estate planning attorney on a regular basis.

Reference: Spotlight News (May 19, 2021) “Estate Planning To-Dos”