Q. My wife asked if she would still get my IRA money if I died. My initial answer was that she is my heir, so yes she would get the money. But then some questions came up as I thought about this further.
The checking account is held jointly so she is okay there, I think. But the Social Security deposit would stop. Without that there would not be enough to cover the drafts for the mortgage, utilities and car insurance. Can she just call my adviser to get the monthly deposit from the IRA increased? Can she get my Social Security? Mine is quite a bit more than hers. Would she continue to have an IRA Required Minimum Distribution? If so, would that be based on her age or mine? If it matters, I’ll be 70 ½ this year and m wife is 67 years old. I am not planning to visit the pearly gates any time soon but we never know when our time on this earth is going to end.
A. And we’re stayin’ alive, stayin’ alive. Ah, ha, ha, ha stayin’alive, stayin’ alive. My brother-in-law has always said “Stayin’ Alive” by the Bee Gees should be the theme song of the baby boomers. I’ve tried to get his rendition of the song on YouTube but he will not cooperate! I certainly hope you will have many more years on this earth but planning for what happens after death is a smart financial move. Your questions are a good start for having a plan but you should visit with an estate planning attorney and/or a financial adviser concerning your personal situation to make sure there are not other areas in which you need assistance.
If your checking account is titled with you and your wife as joint tenants with right of survivorship or in tenancy by the entirety you each have an equal right to the money in the account and when one owner dies, ownership automatically passes to the surviving spouse. You may want to add a payable on death feature to this account. If neither owner is alive the account will pass to the designated beneficiaries outside of probate.
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If you predecease your wife, she will continue to receive her Social Security benefit and as a surviving spouse she will receive an additional amount based on your earnings record. The combination of benefits will equal your higher benefit.
You don’t want your spouse to inherit your IRA as an heir, you want to be sure she is named as the beneficiary of your IRA. This way upon your death, as a spouse she can chose to make your IRA her IRA. If you want her to inherit all of your IRA you will name her as 100 percent primary beneficiary. You can name multiple primary beneficiaries and allot different percentages to each. If you love your wife, you should only do this if you are certain she will have sufficient funds on which to live without 100 percent of your IRA. You should also name contingent beneficiaries. Contingent beneficiaries will inherit your IRA if the named primary beneficiary is deceased at the time of your death. Since your wife is younger and over age 59 ½, as primary beneficiary, upon your death she should choose to become the owner of your IRA.
This way she can take RMDs based on her life expectancy and delay them until she is 70 ½. She can always take money out before 70 ½ and she is not limited to the amount of the distribution. The only requirement is that she begin RMDs at age 70 ½ (technically by April 1st of the year following 70 ½) or she will face a 50 percent IRS penalty. If you are worried that your wife may take too much out and run out of money that is another topic for another column and a discussion to have with your estate planning attorney.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624