Estate planning in retirement is critical to finishing well. It guarantees the people you love are taken care of after you die. Estate planning for blended families is especially important.
Starting this process can be complicated, hard, and emotional; no one wants to think about leaving their loved ones behind.
At Cardinal, we specialize in having these difficult conversations, because we know they get you to the place you need to be, with a well thought out plan and the peace of mind that your loved ones will be secure.
Estate Planning: Second Marriages
Hans goes over 1 solution we use for client’s estate plans, especially those in second marriages or blended families.
Who is the focus of your Estate Planning?
For many people in second marriages, their focus is initially solely on their children. They want to make sure the kids are protected in case of their death.
Usually, the love and concern for their children distracts them from thinking about their new spouse.
For most people in this situation, who are in their 50’s, 60’s, and 70’s, they do not have enough money to leave all their assets to their children at death. The surviving spouse is going to need the bulk of the money. When one spouse dies, the other spouse cannot afford to lose half the money as well.
We recently had a couple come to us with questions about their estate planning. This was the 2nd marriage for both partners, and they both came in with children from their previous marriage, him with one daughter and her with two sons.
When they came to us, the husband had a trust set up so that when he died, his daughter would get all his assets. The purpose of this trust was not to protect his wife, but to protect his child.
After getting a deeper understanding of their financial situation, as well as their wants for each other and their children, we realized that, in their plan, they had the same money promised to 3 places: each other, their children, and possible long term care costs.
We were able to come up with an estate plan that not only protected the surviving spouse, but also prioritized leaving an inheritance to all their children.
Listen to learn more about estate planning for blended families:
Life Insurance: The Estate Planning Solution
For those in second marriages, life insurance can be the perfect solution to making a comprehensive estate plan.
For the couple above, life insurance worked perfectly. We took the money they had promised to each other, their children, and long term care and put it in one place.
On each spouse, we suggested they purchase a $300,000 life insurance policy. The beneficiaries of both policies were all 3 children, who would each get $100,000 at the death of each spouse.
This means in the end, all children would end up with $200,000 of life insurance payments. We determined they would also all equally split the remaining assets at the death of the second spouse.
By doing this, we were able to ensure that at the death of the first spouse, no matter who went first, their children would get an inheritance while the bulk of the assets would stay with the surviving spouse so they had enough to live off of.
In this specific scenario, the husband had initially made the beneficiary of his IRA a trust, with the trustee being his daughter. Leaving an IRA to a trust not only makes distribution of this money complicated, but also causes the beneficiaries to pay more in taxes, as the Secure Act recently limited the use of a Stretch IRA.
To simplify, it means while his daughter would inherit the IRA money, she would also have to take out large distributions, resulting in a very large tax bill.
Surviving spouses receive special treatment in regards to inherited IRAs. They are able to either withdraw the balance of the IRA over their life expectancy or roll the money into their own IRA. This gives them the ability to pay lower taxes as they do not have to withdraw large amounts.
The best part of this specific life insurance policy though was the addition of the long term care benefit.
If either spouse was to need long term care, they are able to use this policy to pay for care. This policy would give them $6,000 a month for 50 months each to pay for long term care services.
If they used all 50 months, the life insurance benefit would be exhausted and not pay out anything at death. If they used just part of the long term care benefit, the life insurance benefit would be reduced accordingly.
While this means that the children might not get a check at death, they are alright with this, as it protects their parent’s estate from the high cost of long term care services.
All the benefits, whether paid out as life insurance or for long term care are tax free.
This policy, while working great for a couple in a second marriage, also works just as well for those in their first marriage, or even those who are single.
Life insurance can work as an estate planning tool for almost anyone, as long as they find the right policy for their situation. Cardinal can help you do that.
