“Honey, we need to talk … about estate planning.”

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Rick Kahler MS CFP

By Rick Kahler MS CFP®

Supposedly, the most frightening words one spouse can hear from the other are, “Honey, we need to talk.” Even more frightening, however, is, “Honey, we need to talk about estate planning.”

What can you do if you want to get serious about estate planning, but your spouse doesn’t?

Here are a few suggestions:

  1. Consider ways to persuade a reluctant spouse to participate

First, give up nagging. In my years of financial planning, I’ve seen how ineffective it is from either an advisor or a spouse.

Instead, it might be worthwhile to do some research and show your spouse some of the specific consequences of not planning. Depending on the complexity of your circumstances, you may find it worthwhile to consult an attorney, accountant, or financial advisor. You can also find a great deal of helpful information, such as state probate and intestacy laws, online.

If you have no wills, find out how your state laws distribute assets when someone dies without a will. Show your spouse how that distribution would affect your family. In many cases, intestacy laws are still designed around a traditional one-marriage-with-children family structure. They may fail to provide for members of families that don’t fit that mold—for example, by disregarding stepchildren and step grandchildren.

If you have wills but made them years ago, take a close look at their provisions. Show your spouse—with numbers, if you can—exactly who would benefit and who would not. Your spouse may be persuaded to take action if he or she sees the specific ways that yesterday’s wills don’t provide for today’s family. Even if this accomplishes nothing beyond convincing your spouse to destroy an outdated will, it may be worthwhile. An outdated will, in some cases, can be worse than none at all.

It’s quite likely that neither of these approaches will succeed. This leaves you with the next-best option.

  1. Do what you can on your own

With your own separate property, you can do any estate planning you want, including executing a will and setting up a living trust. I would also strongly encourage you to execute powers of attorney for financial and health decisions.

However, you might be surprised at the limits on estate planning for assets you consider yours. One important provision is that married people cannot name anyone except each other as beneficiaries on retirement plans without the spouse’s permission. Suppose, for example, you would like to name your children from a previous marriage as beneficiaries on a retirement account as a way of providing fairly for them if your spouse died intestate. You would need your spouse’s consent to do so.

Also, a will executed by one spouse does not affect assets held jointly or in trust, annuities, retirement plans, or individually held bank or brokerage accounts that have a TOD (transfer on death) provision.

Assuming you cannot persuade your spouse to participate in estate planning, and assuming you have done whatever individual planning you can, there’s one more step you can take.

  1. Educate yourself.

Do your best to create and maintain a complete inventory of assets you and your spouse hold jointly, as well as your separate retirement accounts, insurance policies, and other individual assets. Include account locations, approximate balances, and access information. Having this information will be invaluable if you end up as the administrator of your spouse’s estate.

Ironically, the person who benefits most from your separate estate planning may be your non-planning spouse. Yet doing whatever you can-will also help you be prepared, just in case you need to deal with the consequences of your spouse’s lack of planning.

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Assessment

Some basic; but important thoughts.

Conclusion

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OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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One Response

  1. More Estate Planning

    The current annual US budget, as proposed by President Obama, includes some significant potential changes in tax law. Among these are proposals that could result in higher capital gains taxes on inherited property, an end to most tax-deferred real property exchanges, and increased taxes on S corporation dividends.

    In the estate planning category, the President would like to end the step-up in basis rule and replace it with a mandatory sale at death rule.

    The step-up in basis rule allows property that has appreciated in value to be passed to an heir without either the estate or the heir having to pay capital gains tax. The heir’s “basis” in the property (the amount, equivalent to a purchase price, deemed the heir’s initial value for tax purposes) is what the property is worth upon the date of death. Only appreciation from the date of death will be subject to any capital gains tax. Under Obama’s proposal, the estate will have to pay tax on any capital gains as of the date of death. As I read the proposal, these taxes are in addition to any estate taxes.

    For example, assume your mother purchased an acreage 20 years ago for $30,000. At the time of her recent death, the property was worth $500,000. Under the current law, you would receive the land with a new “stepped-up” basis of $500,000. Neither your mother’s estate nor you would pay any taxes on the $470,000 gain.

    Under the president’s proposal, your mother’s estate would pay up to $88,060 in tax on the gift to you (the first $100,000 of gain would be excluded from taxation), leaving that much less to distribute to you and any other heirs. Even worse, suppose the acreage was the only property of significant value your mother had owned. It’s conceivable that the estate would have to sell the property to raise money to pay the tax, then distribute the remainder of the sale proceeds to you. In effect, the new tax law could eliminate your ability to inherit the land and reduce the value of what you receive by $88,060.

    The next proposal in the budget is to cap any 1031 tax-deferred exchanges of investment property. This proposal would also completely end all like-for-like deferred tax exchanges for collectibles and art.

    The 1031 is a popular real estate tax planning provision where an investor can exchange a property for another “like-kind” property and defer the capital gains tax until the property is eventually sold for cash.

    The President wants to limit the deferred gain to $1,000,000 in any one year. Any gain above the limit would be taxable at up to 23.8%. Since there is inherently no money changing hands in an exchange, the investor would have to have sufficient additional funds available to write the US Treasury a check. This would effectively end the 1031 exchange as a tax planning tool for all but the smallest of investors.

    Another disturbing proposal is to apply the 3.8% “Obamacare Tax,” (a net investment tax for those with adjusted gross income over a certain threshold) to S Corporation dividends. Currently, shareholders don’t pay this tax on such dividends. The proposal would now tax all pass-through income as self-employment income, subjecting S Corporation dividends to the tax.

    The chances for any of these proposals to become law in 2016 are remote, given that Congress is currently controlled by Republicans and we are in an election year. Yet the proposals may indicate some of the revenue possibilities lawmakers are looking at. It’s a good idea to keep those possibilities in mind in considering your own estate and tax planning.

    Rick Kahler MS CFP®

    Like

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