Dear Liz: I want to make sure I leave a legacy for my son from my first marriage. I remarried 12 years ago. My husband has no children. I have a prenuptial agreement. My husband and I are doing well financially. We own our own house and have adequate investments. I would not want to leave my husband without the necessary funds, and he says he will see to it that my son receives an inheritance. But my husband’s father had dementia, and I fear that if my husband develops it, he will spend all the money on impulse purchases. He tends to do impulse buying now that we can afford it. What can I put in place to ensure my son receives an inheritance?
Respond: If you don’t make specific plans to leave money to your son, he may not get an inheritance even if your husband doesn’t develop dementia.
In other words: if you don’t want your spouse’s next spouse to spend your money, talk to an estate planning attorney about your options.
You could, for example, bequeath part of your estate to your son and the rest to your spouse. Another option is to create a trust that gives your spouse income from your assets while they are alive, then transfers the assets to your son when your spouse dies. Yet another is to designate your son as the beneficiary of certain accounts, such as life insurance or retirement funds, while leaving other accounts to your spouse.
All of these options have advantages and disadvantages. An estate planning lawyer can help you assess the best approach for your situation and draft the necessary documents.
Learn more: This spouse wants to keep a secret inheritance from the other spouse. Here’s a better idea
Taxes and social security
Dear Liz: You wrote in a column about pension plan distributions and the effect these have on the taxation of his social security benefits. Your example was that if someone earned more than $44,000 in combined income, their benefits would be taxed at 85%. Does this apply if one waits until full retirement age to start receiving social security? My husband will also need to start making the required minimum distributions in 2023. Are these distributions taxed differently than the rest of our income, since we are both still working? Or does it matter whether we work or not?
Respond: Social Security taxation is complicated and often misunderstood, but rest assured you will not lose 85% of your benefits. If you have income in addition to Social Security – whether from work, pension plan distributions or other sources – then up to 85% of your benefit may be subject to tax at your rate. ordinary income tax.
The previous column mentioned that Social Security taxes are based on your “combined income,” which is your adjusted gross income — the figure you report on line 11 of your 1040 tax returns — plus any non-taxable interest and half of your social security benefits. Single filers with combined income between $25,000 and $34,000 may have to pay income tax on up to 50% of their benefits, while those with combined income over $34,000 may pay tax on up to 85% of their benefits. Married couples filing jointly may have to pay income tax up to 50% of benefits if their combined income is between $32,000 and $44,000. If their combined income is over $44,000, they may have to pay up to 85% of their benefits. You can learn more about how Social Security benefits are taxed on the agency’s website.
Your benefits may be taxable no matter when you start. However, the researchers found that many middle-income people pay less tax overall if they delay Social Security and dip into their retirement funds instead. You can read more about the “fiscal torpedo” at the Financial Planning Assn. website.
Your husband’s required minimum distributions will be taxed as income, unless he has made non-deductible contributions to these retirement plans. If he made after-tax contributions, part of his withdrawals would not be taxed. However, most people got tax relief for all their contributions, which means all their withdrawals are taxable.
A tax professional can review the details of your situation, help you estimate your tax bill, and ensure you have enough source deductions to avoid penalties.
Liz Weston, Certified Financial Planner, is a personal finance columnist for Nerd Wallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
This story originally appeared in the Los Angeles Times.