RETIREMENT ACCOUNTS IN FIRST AND SECOND MARRIAGES

Transcription

1 Matthew D. Gardner th Street, Ste. 207 Urbandale, IA (515) RETIREMENT ACCOUNTS IN FIRST AND SECOND MARRIAGES Defusing the Time Bmb Identificatin f the Time Bmb Larger prtins and significant percentages f family s wealth are grwing inside retirement accunts. As f 2015, ver $25 trillin in retirement assets Peple are still getting divrced and dying 40-50% divrce rate 100% mrtality rate Identify Gal: Explsin r Safe Divisin? Secnd Marriage Challenges Prvide fr spuse? Client typically wants t take f his/her spuse after client dies. Several variables invlved in reaching this gal: age f spuse, financial needs f spuse, health cnditin f spuse, available assets. T the pint f exhaustin f assets? Prvide fr children frm prir relatinship? ~ 1 ~

2 Client typically still wants t prvide fr children frm prir relatinships/marriages. If this dne at Client s death, may leave surviving spuse deficient in addressing their financial needs. Spuse vs. children Dual-cmpeting gals with ptentially limited assets t accmplish bth. First Marriage challenges Mst clients als d NOT want t prvide fr the cabana by r kids f the cabana by After being married t yu, I wuldn t want t get married again. Once is enugh. BUT, plans change and peple d get remarried. 60% men remarried within 2 years; less than 20% f wmen. Query: Are wmen mre easily replaced? Wealth > Attractiveness? Expectatin that surviving spuse will d what is right but n guarantees and mistakes d happen. Dn t Push the Red One: Special Rules/Laws fr Spuses Spusal Rights in Iwa Elective Share Rights f a Surviving Spuse Right t take against the will Surviving spuse has the statutry right t avid disinheritance under their spuse s will r trust. Can chse (r be frced) t receive their required share. Essentially, guarantee f ⅓ f prbate r trust assets. ⅓ Share is in lieu f prperty under will/trust. Spuse has t chse ne r the ther. ~ 2 ~

3 Nnprbate/nn-trust assets (e.g., thse with named beneficiaries) are nt subject t the elective share. Estate f Myers (2012). POD accunts nt subject t elective share rights. Elective share an be waived by prenuptial agreement. Spusal Allwance Surviving spuse allwed an allwance fr a 12-mnth perid after death fr their supprt. N magic frmula, ala child supprt guidelines, but several factrs under the statute are cnsidered by the curt. Prenuptial agreement cannt waive this right t an allwance. Prenuptial/Pst-Marital Agreements Prenuptial agreements - allwed in Iwa, but carefully scrutinized by curts. Pst-marital agreements - nt permitted in Iwa. Exceptin if the cuple had a valid pst-marital agreement frm their pre-iwa days, based n Iwa case - Husseman (2014). Keep beneficiaries updated Critical t review beneficiary designatins. Even if divrced and even if waived in the divrce agreement, beneficiary frm cntrls the distributin f the 401(k) accunt. (Kennedy (US 2009)). Ex-spuse can inherit 401(k) under beneficiary designatin frm. But, beneficiary designatin frm fr ex-spuse is nt applicable fr IRA accunts ~ 3 ~

4 Ex-spuse as named beneficiary is revked under state law in event f divrce. Iwa Cde 598A.20A and.20b. Even if IRA rlled ver frm a 401(k). Special Prtectin fr Defined-Benefit plans (e.g., 401(k)) accunts Spuse is presumed t be beneficiary, regardless f beneficiary frm, unless the spuse specifically waives/cnsents t a different beneficiary. Plan dcument can cnditin beneficiary rights as cntingent n ne year f marriage, but nt required. Cannt be waived by a prenuptial agreement. Only a spuse can sign and nt a fiancé, althugh prenuptial agreement can bligate fiancé t sign waiver after married. Written cnsent necessary under ERISA. Waivers needs t be ntarized r witnessed Desn t apply t IRA accunts. Even if rlled ver frm 401(k), yu can bypass the spusal prtectin and name anyne else as yur beneficiary f the IRA. Cutting the Right Wire: Optins t Cnsider Naming Spuse utright as Beneficiary Advantages Maximum Deferral as spuse can rll ver retirement accunt and defer distributins until age 70 ½ Maximum stretch-ut. Disadvantages Disinheritance thrugh beneficiary change by surviving spuse. ~ 4 ~

5 Child f predeceased spuse may nt stay n as named beneficiary by surviving spuse. Spend-dwn by spuse. Mnthly vacatins t Paris aren t cheap. Family discrd/cnflict. Lavish lifestyle, lack f infrmatin, lack f trust. Naming Children as Beneficiary Advantages Stretch-ut ptin Disinheritance f children prtected Disadvantages N deferral ptin fr nn-spuse beneficiaries - Distributins will need t start=taxable incme N benefits fr spuse frm this accunt. Split Shares between spuse and children Advantages Avids ptential disinheritance f children and appeasement. Prtin available fr maximum deferral and stretch ut. Disadvantages May be insufficient fr lng-term needs Insufficient fr expectatins. Cnsent may be required (401(k)). Replacement Assets Using life insurance, r ther assets, fr either spuse r children, and retirement accunt ges t the ther. If nt structured crrectly, ptentially subject t spusal elective share claim. Ptential challenge in keeping shares (life insurance and retirement accunt) equal in value. ~ 5 ~

6 May use retirement distributins t keep insurance in place, thus the retirement accunt is reduced. RMD diminishes accunt. Insurability/feasibility risks with btaining cverage. Naming Trust as Beneficiary A trust inserts what is missing in the relatinship. Addresses issues with minrs, spendthrifts r thse with special needs. Prceed with cautin in naming a trust as a beneficiary. Cmplicated and several disadvantages t using trust as a beneficiary. Ptential incme taxatin issues assciated with naming trust as beneficiary. Requirements t have trust be a designated beneficiary General rule that a designated beneficiary must be an individual fr installment structure. Hwever, a trust can be a designated beneficiary (a see-thrugh trust) and fall under the stretch payut if 4 MRD trust rules are met: Trust is valid under state law Trust is irrevcable, r will be at death f participant. Beneficiaries are identifiable frm trust dcument and are individuals. Dcumentatin t the plan administratr. Lack f see-thrugh trust treatment results in all sums distributed within 5/6 years after death. Distributin frm accunt based n age f ldest beneficiary. Even if separate shares created under trust, unless beneficiary frms names the separate ~ 6 ~

7 shares, still use the ldest beneficiary under the trust. Remval f undesirable persn/entity by September 30 f fllwing year Death, distributin, disclaimer N spusal rllver ptin. Cnduit Trust Trustee des nt have pwer t accumulate plan distributins in the trust. All distributins must be paid ut t beneficiaries. Advantages Prtectin fr children Maximum stretch-ut Disadvantages Eternally-living spuse N accumulatins full payut if meet life expectancy Lessens trustee cntrl. Accumulatin Trust If nt a cnduit trust = accumulatin trust. Instead f distributing ut plan distributins t beneficiaries, trustee can retain amunts in trust. Cautin: Careful in determining the beneficiaries in rder t qualify as a see thrugh trust. Planning with Minrs Cnduit Trust Safe harbr apprach Fllw beneficiary chain until the trust is distributed immediately and utright t a beneficiary. The chain is the grup t review fr rule cmpliance. ~ 7 ~

8 MRD very small Accumulatin Trust Several minrs? Use last man standing apprach t prperly identify an individual as beneficiary. Final individual beneficiary is necessary (n charities). Special Needs Planning with Trusts Cnduit Trust structure impacts eligibility fr gvernment prgram benefits. GARDNER LAW FIRM, P.C. Matthew D. Gardner th Street, Ste. 207 Urbandale, IA (515) matt@gardnerlawpc.cm Disclaimer: These materials are intended t prvide the seminar participants with guidance in estate planning matters. The materials d nt cnstitute, and shuld nt be treated as legal advice regarding the use f any particular estate planning technique r the tax cnsequences. Gardner Law Firm, P.C. and the authr d nt assume respnsibility fr any individual s reliance upn the written r ral infrmatin prvided during the seminar. ~ 8 ~