For years we’ve been hearing about the so-called “great wealth transfer.”
As baby boomers die, trillions of dollars will be transferred to younger generations. While true, this myopic gaze overlooks a major wealth transfer that is already occurring.
As women generally live longer than men, and married women are typically a few years younger than their spouses to begin with, women are finding themselves the beneficiaries of a horizontal wealth transfer — a transfer between spouses. That means women are the first ones taking charge of these “trillions of dollars.”
This is reason enough for women to pay more attention to estate and financial planning.
The statistics
The statistics make it clear that as a rule, women should care more about financial and estate planning and certainly not leave those things solely up to a spouse.
According to Scientific American, women outlive men by about five to six years.
The US Census Bureau finds that 36% of women age 65 and older are widowed. Among people 75 years or older who had ever married, 58% of women and only 28% of men had experienced the death of a spouse in their lifetime.
And once a divorce or death occurs, a Pew Research study found that men are more likely than women to be open to remarriage. Only 30% of the men responded that they did not want to get remarried versus 54% of women. Only 15% of women said they wanted to remarry versus 29% of men.
Census bureau statistics are even more startling. They estimate that each year, only three women and 17 men out of every 1,000 widowed women and men aged 65 and older remarry.
However you look at it, women are likely to benefit from a horizontal wealth transfer that leaves them responsible for managing significant assets.
Whether you consider yourself wealthy or not, if you’re a woman, it is particularly important that you educate yourself on financial and estate planning.
Meet with your advisers, and if you don’t have any, there’s no better time than now to engage one. If your spouse has advisers, meet with them. If the adviser doesn’t take you as seriously as your spouse, hire your own advisers. Don’t allow yourself to be left out of planning — you need to know what’s in store for your future.
The estate plan
Every adult should have at least a will, a health care directive, and a power of attorney. Make sure you and your spouse have those in place. Also, make certain you’ve named several people, in order of priority, to act for you in the event of your incapacity — your spouse may not survive you.
In California, a trust is generally needed by anyone with assets in excess of $184,500 to avoid probate. A trust, when done properly (i.e., not a DIY online, and not from a document preparer who cannot by law give you legal advice), can provide for an orderly management and eventual distribution of your assets during your lifetime and after.
If you’re single, these documents are particularly important to protect you in the event of your incapacity, so you aren’t just leaving decisions to your “next of kin,” whomever that might be. Once you get those documents in place, make sure you review them at least every two or three years and update them as needed.
If you’re married, you and your spouse should carefully discuss the provisions in the event one of you becomes incapacitated or passes away. Review and discuss your trust regularly — the terms of the trust will affect you during your lifetime.
The unforeseen problem
Many trusts have provisions in them requiring the trust to split in two at the death of the first spouse.
Commonly known as an “A/B” or a “survivor’s/decedent’s” trusts, the division of assets was formerly necessary in order to claim the estate tax exemption of each spouse. While there still may be reasons to split a trust in two at the death of the first spouse (children of different marriages, for example), for most people the tax reason no longer exists.
Since 2012, the law allows for “portability” such that both spouse’s tax exemptions can be utilized at the death of the second spouse.
If the trust does split in two, even when the decedent’s trust provides only for the surviving spouse during her lifetime, the contingent beneficiaries (usually the children) do have certain rights.
A typical decedent’s trust, for example, might provide that all income is paid to the surviving spouse, but principal may only be distributed for the spouse’s “health, education, support, and maintenance.”
When principal distributions are made from such a trust, the children as contingent beneficiaries can file complaints arguing that the distributions made to the surviving spouse were not for “health, education, maintenance, or support.” They are entitled to information about the assets and investments of the trust.
A contingent beneficiary may also have claims against the trustee if the trust seems invested solely to generate income for the spouse at the expense of principal growth that would one day benefit the contingent beneficiary.
Are these things the spouses really meant to allow? There are better ways of handling this, and your trust may need revision.
Anecdotally, I can tell you I see a lot more disputes between stepmothers and stepchildren (and children!), than I do between stepfathers and stepchildren. That may be because of stereotypes or misogyny, but it’s likely because, more often than not, the wife is the surviving spouse left to deal with trust provisions neither spouse may have fully understood.
Beneficiary designations
We mention this a lot in this column, and that’s because we see problems with beneficiary designation forms so often.
So please, be sure you have current beneficiary designation forms completed for life insurance and retirement plans. Don’t just take your spouse’s word for it — get a copy of the forms.
Even the most well-intentioned spouse could have forgotten to fill out the forms, made an error, or failed to update as needed.
If you’re a woman, whether married or single, you are very likely to one day be solely in charge of your financial well-being, and quite possibly your heirs as well. Prepare yourself now so your golden years are, in fact, golden.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at [email protected]
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