How to prevent your spouse’s next of kin from spending your money after you die

FILE - A woman counts U.S. dollar banknotes at a currency exchange office in Ankara, Turkey, Monday, March 22, 2021. While the value of the U.S. dollar is rising, other currencies around the world are falling in comparison.  (AP Photo/Burhan Ozbilici, file)

If you want money or assets to go to a specific person after your death, you must put that in writing. An estate planning attorney is key to this process. (Burhan Ozbilici/Associated Press)

Dear Liz: I want to make sure I leave my son an inheritance 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 home and have sufficient investments. I don’t want to leave my husband without the necessary funds and he says he will make sure my son gets an inheritance. But my husband’s father had dementia and I worry that if my husband gets it, he may spend all his money on impulse buying. He tends to make impulsive purchases now that we can afford them. What can I arrange so that my son receives an inheritance?

Answer: Unless you specifically plan 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.

For example, you could leave part of your estate to your son and the rest to your spouse. Another option is to set up a trust that provides income from your assets to your spouse while they are alive and then transfers the assets to your son when your spouse dies. Another option 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 pros and cons. An estate planning attorney can help you determine the best approach for your situation and prepare the necessary paperwork.

Continue reading: This spouse wishes to keep an inheritance secret from the other spouse. Here’s a better idea

taxes and social security

Dear Liz: You have written a column about payouts from retirement plans and the impact they have on the taxation of Social Security benefits. Your example: If someone collectively makes more than $44,000, their benefits would be taxed at 85%. Does this apply if one waits until full retirement age to collect Social Security? My husband will also have to make the required minimum distributions from 2023. As we both still work, will these distributions be taxed differently than the rest of our income? Or does it matter whether we work or not?

Answer: Social Security taxation is complicated and often misunderstood, but rest assured you won’t lose 85% of your benefits. If you have income on top of Social Security – whether from work, retirement savings or other sources – up to 85% of your benefit may be subject to taxation at your normal income tax rate.

The previous column mentioned that taxes on Social Security are based on your “combined income,” which is your adjusted gross income – the number you report on line 11 of your 1040 tax return – plus any non-taxable interest and half of your Social Security benefits . Single people with combined incomes between $25,000 and $34,000 may have to pay income tax on up to 50% of their benefits, while those with combined incomes over $34,000 may have to pay tax on up to 85% of their benefits. Married couples applying together may be required to pay income tax on up to 50% of benefits if their combined income is between $32,000 and $44,000. If their total income is more than $44,000, they could be taxed on up to 85% of their benefits. For more information on taxation of Social Security benefits, visit the agency’s website.

Your benefits may be taxable regardless of when you start. However, researchers have found that many middle-income people pay less overall tax if they delay paying Social Security and instead rely on their retirement savings. You can read more about the “Tax 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 plans. If he made post-tax contributions, some of his withdrawals would not be taxed. However, most people get a tax break on all of their contributions, meaning all of their withdrawals are taxable.

A tax professional can look at the details of your situation, help you estimate your tax bill, and ensure you have enough withholding to avoid penalties.

Liz Weston, a certified financial planner, is a personal finance columnist NerdWallet. Questions can be directed to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or by using the “Contact Us” form below asklizweston.com.

This story originally appeared in the Los Angeles Times.

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