Dear Carrie: I am a 65-year-old widow and am considering getting married again. What financial steps should I take before I tie the knot? — A Reader
Dear Reader: This is a great question — and one worth considering at any age. Marriage is about love, but it also impacts your money. And the financial implications can be even more significant when both partners have had time to acquire and manage assets for many years. This can be especially true for a second marriage.
And it's not just about numbers. There's an emotional side to marrying your finances. You need to examine your own feelings about such things as financial independence and also take into account the feelings of your loved ones, particularly adult children.
There's a lot to consider — both practical and personal. To me, it's not just about understanding the financial issues on your own but about coming to an understanding with your partner. Although it may feel uncomfortable, it's important to talk openly and honestly about your finances with your partner.
Here are some things to consider together.
Dollars and Cents
Many of the financial benefits that come with marriage relate to Social Security and estate planning.
For instance, if you marry, you'll be eligible for both spousal and survivor Social Security benefits based on your new husband's work record. If you're currently collecting survivor benefits on your late spouse's record, you could either continue to receive those benefits (because you're remarrying past age 60) or switch to the spousal benefit if that would be higher.
When it comes to estate planning, a married person can leave an unlimited amount of money to his or her spouse without incurring any estate tax, assuming the spouse is a U.S. citizen. In addition, the surviving spouse can use any unused portion of the deceased spouse's lifetime estate tax exclusion upon his or her death. Estate and gift tax exemptions are adjusted annually for inflation; the individual exclusion is nearly $11.2 million for 2018. This means that under current law, a married couple can pass on up to nearly $22.4 million free of federal estate tax.
However, some states also have separate estate taxes, and the amount excluded from state estate taxes varies by state. Many states have a "use it or lose it" state estate tax exemption, and specific estate planning may be needed to allow the state estate tax exemptions of both spouses to be used. Currently, the 13 places with state estate taxes are Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.
Though this affects only the very wealthiest few, for the sake of example, let's say your spouse gives away $3 million and you give away $2 million during your lifetimes. If one of you were to pass away, the combined estate tax exemption for the surviving spouse would still be $17.4 million ($8.2 million of unused exemption from your spouse plus $9.2 million of your unused exemption). Clearly, this is more than ample for most couples.
In addition, spouses who are both U.S. citizens can transfer an unlimited amount of property to each other free of any tax reporting responsibilities or gift tax. You'll also be able to use "gift splitting," which allows a married couple to share a gift's total value so that each contributes half the amount when giving to a third party. There's no gift tax if the gift is within the limits (currently $15,000 per individual and $30,000 per couple); however, gift splitting does require filing a gift tax return.
You may need to make some hard decisions with your mate. To help you get through them, approach difficult tasks as partners and come to an agreement on how to handle them. Here are some things to think about:
—Will you need a prenuptial agreement? If so, consult an attorney to draft the initial terms. Often, each person will hire his or her own attorney to assist with the negotiation and drafting of the prenuptial agreement (and in some states, this is a requirement for the prenuptial agreement to be valid). Even if you decide against a formal legal document, it's essential to openly discuss your finances and put your decisions in writing.
—How will you handle your estate? Discuss your individual responsibility with children and grandchildren — or any other dependents or family members — and how you want to provide for them. For example, a qualified terminable interest property trust could provide for a surviving spouse while ensuring that a residual amount goes to the children of a prior marriage after the surviving spouse passes away. Also be sure to update beneficiaries on all pertinent accounts — such as retirement plans, pensions and annuities — and make sure all assets are titled correctly. Talk about any charitable organizations that you want to support.
—Do you have someone who can advise you on important financial decisions? Depending on the complexity of your financial situations, it may be wise to consult a financial adviser and estate planner together before you're married. A trustworthy adviser can help you organize your finances in a way that helps protect both of your individual assets while forging a new, supportive financial relationship.
The Importance of Communication
There can be a lot of sensitivity around a late-in-life second marriage, so you may want to include your kids and any other close family members in your plans. Assure them that you have thought through the financial implications and are protecting yourself. If you decide on a prenuptial agreement, consider giving adult children a copy. Likewise, be upfront about your estate plans so there are no surprises later.
Most importantly, keep talking to each other. I believe that the most essential issues go beyond numbers and should be discussed with complete candor before a second trip down the aisle.
Communication is the key to any successful relationship, and talking about finances is an important part of it. Though it's not always comfortable talking about money, if you listen to each other and honor each other's feelings, you may find that financial honesty actually teaches you about each other's values and priorities and, ultimately, brings you closer together.
Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty." Read more at http://schwab.com/book. You can email Carrie at [email protected] The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.