7.1.2010 Estate Planning
So, Grandma Wants to Remarry...
With longer life spans, better health, and more active lifestyles in their senior years, many single people are facing legal issues that were less frequently encountered before. Lawyers are being called upon to answer questions from aging, unmarried clients, such as: “What issues should I consider before remarrying?”
The number of issues faced in such situations is far beyond the space allowed for this article, but let us consider just a few concerns.
In many respects, the law favors marriage and a surviving spouse. Assuming Congress continues some similar form of the federal estate tax, a married person can make unlimited tax-free gifts to a spouse, both during lifetime and at death. In contrast, for nonspouses the federal rate could be up to 55 percent. Likewise, the current Pennsylvania inheritance tax rate to a spouse is zero. In contrast, for an unmarried companion who inherits, the Pennsylvania tax rate is 15 percent. In addition, when selling a home, the $250,000 per person exclusion from capital gains tax is doubled for a married couple, compared to a single person. A surviving spouse who is named beneficiary of an IRA can roll over the account and continue to defer the tax — a stranger cannot. A surviving spouse of a jointly owned capital asset receives a 50 percent stepped-up basis even if he or she did not contribute to the purchase of the asset.
Probate law in Pennsylvania, as in many states, gives certain preferential priorities to surviving spouses. They have priority as the personal representative of the estate of a deceased spouse and elective rights in estate assets, even if the surviving spouse is not named in the will. A surviving spouse has the right to determine funeral and burial decisions, to the exclusion of the wishes of surviving children. Without a medical power of attorney and living will, providers will consult with the spouse, rather than children, relative to the end-of-life care decisions. Other second-marriage consequences are less beneficial. If that same couple marries and one needs long-term skilled nursing care, all of their assets, regardless of who originally owned them and regardless of which spouse has entered skilled nursing care, will be added together and subject to the “spend-down.” The infamous “marriage penalty” still exists in federal income tax rules. Many married couples will incur higher income taxes than had they remained single. Social Security and Veteran’s survivor benefits may end upon a second marriage.
Remarriage can limit a person’s choices of beneficiaries on retirement plans. Since 1984, when the Retirement Equity Act (REA) was passed, a person who wants to name someone other than their spouse as beneficiary of a 401(k), 403(b) or a 457 plan must first obtain the written consent of their spouse. The REA does not apply to IRAs, so a married IRA owner may name whomever he or she wishes as beneficiary of the IRA.
Distribution of tangible personal property deserves particular attention. A couple marrying later in life typically have a blend of “his,” “her” and “other” items. The newlyweds should provide written directions as to how they want tangible personalty distributed at their death to minimize disputes among their respective children or other family members.
If you are considering a marriage later in life, you are encouraged to discuss these and a number of other legal considerations with your lawyer at Peacock Keller.