Estate Planning for Retirement

Retirement is often an exciting, yet bittersweet time of life. Chances are good that all of your children have left the nest with lives and growing families of their own. If your parents are living, perhaps you are taking care of their personal, health care and financial responsibilities. Now is a good time to create (or revisit) your estate plan and make sure your adult children and parents have their legal ducks-in-a-row, too. Using thorough retirement planning, I can help you prevent issues that can happen when families are not up-to-date with their estate planning. Below are four considerations to help you protect benefits today and prepare for the future.

Unfortunately, many married couples mistakenly believe that they can make personal, health care and financial decisions for one another should either spouse become legally incapacitated due to a serious injury or illness. Nothing could be further from reality!

Without proper estate planning in advance to appoint your spouse as the incapacity decision-maker, he or she will not have legal authority to make even fundamental decisions for you (or affecting both of you). For example, medical privacy laws such as HIPPA will bar access to your medical records and the ability to consult with your attending physician, financial laws limit control over your finances, and IRS regulations will prohibit filing a “legal” joint income tax return…for starters.

Unless you legally appoint a decision-maker or health care agent or health care surrogate through proper estate planning, then a guardianship judge will select one for you. While the judge will likely appoint your spouse, the court process to accomplish this is expensive (it employs at least three attorneys), discloses your private personal and financial information to the public record, and is a real hassle for your spouse.

Did you know that in the absence of proper estate planning, your assets including any retirement benefits may be distributed after death based on “one-size-fits-all” New York State or Florida (depending on where you live when you die) law written for people who do not have their own estate plan? Of course, this impersonal estate plan written by state lawmakers may not reflect your own unique circumstances and objectives for your spouse and assets.

In fact, depending on how you titled your assets and how your beneficiary designations are arranged in your estate planning and retirement benefit plans, you may disinherit your own spouse and force your spouse to sue your estate! Fortunately, I employ thorough retirement planning to replace that impersonal, state-written, one-size-fits-all estate plan with one we design together for your unique circumstances and objectives.

While the death of one spouse is something no married couple wants to think about, it is highly likely that the surviving spouse may remarry at some point. In a recent University of California study, researchers found that 60% of widowers are involved in a new relationship within two years after losing their wives, while only 20% of widows have a new relationship.  Furthermore, according to the U.S. Census Bureau, men are 10 times more likely to remarry after age 65. And the average time before they are remarried is just 2.5 years.

Due to the risks of losing about half of your personal assets or disinheriting your own children and grandchildren should the remarriage not work out, I recommend to my clients who are remarrying that they create a legally enforceable premarital agreement before saying “I do” on his or her wedding day as part of thorough retirement planning.  As you can see, planning for being single again includes planning for any new relationships on the future, while preserving (and protecting) the relationships you already have.

When it comes to your children and grandchildren, great care should be given to protect any inheritance both for them and from them. For starters, wealth representing a lifetime of your hard work and savings can be squandered in very short order. Dollars earned just spend differently than dollars inherited. In addition to good, old-fashioned squandering, an inheritance can quickly vanish through divorces, lawsuits, and bankruptcies.

We can help you coordinate the beneficiary designations on your life insurance and retirement plans with your estate plan to avoid unpleasant, unintended consequences. For example, all beneficiary designations for your retirement plans should be periodically revisited,.

For example, the U.S. Supreme Court has ruled that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law.  Accordingly, if your children or grandchildren are “direct” designated beneficiaries of your IRA, then the distributions may be subject to their divorces, lawsuits and bankruptcies. Careful planning is required to protect these important assets, while at the same time preserving the ability to stretch distributions as long as possible for your beneficiaries. Remember, two things you cannot choose in life are your own parents and the spouses of your children.