Second Marriage Issues in Estate Planning

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Multiple marriages present their own issues when it comes to estate planning techniques, especially if there are children involved in a previous marriage. Protecting your assets and ensuring that your assets go to the named beneficiary rather than someone else can be a cause for concern.

If you have a 401 (k) plan with your business and are thinking of a second marriage, I suggest you consider converting your 40l to a Traditional IRA or Roth IRA before you get married again. If you want to keep your children as beneficiaries or don't want the new spouse to be the heir, this strategy should be implemented before the second marriage.

The federal Employee Retirement Income Security Act of 1974 (ERISA) regulates retirement plans such as 401 (k) and states that a spouse's right to plan assets is immediately vested upon marriage despite designations. of beneficiary. It is not enough to complete a beneficiary form.

Once marriage occurs, it will be necessary for the spouse to sign a waiver waiving their rights to the 401 (k) plan in order to pass the assets of the pension plan to another named beneficiary. This would exclude the spouse from any retirement assets.

An added benefit to converting from the 401k plan may be the fact that an IRA rollover offers much greater benefits than employer sponsored retirement plans. Unlike ERISA plans, a spouse is not required to be a beneficiary of their spouse's IRA account. Couples living in communal property states may have a few exceptions.

An IRA owner has the advantage of naming anyone they choose as a beneficiary. They can divide their IRA into multiple accounts naming separate beneficiaries for each account.

When it comes to selecting securities to invest in an IRA, there is usually more flexibility than a traditional 401 (k) plan. An IRA can offer unlimited investment choices while a 401 (k) plan can only have a dozen investment options.

In summary, if a client wants to name someone other than a spouse as a beneficiary, they must first do two things.

  1. The first is to obtain a waiver of the rights of the spouse.
  2. The second is to update the necessary beneficiary form.

Each step is equally important and does not mean that the spouse cannot or is not the beneficiary. A spouse can still inherit even if a waiver has already been signed, waiving their rights as long as the spouse is still on the beneficiary form if the client dies.


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