Leaving A Legacy, Part Three

The recent increase in suicides and drug overdoses has the CDC concerned with several years of declining lifespan expectations. Hopefully, this isn’t impacting you or your family. Your life projection increases as you age. Understand, if you are 65 today, your life expectancy is greater than the numbers presented by the CDC. Proper legacy planning mandates that you understand this issue.

Individuals who live longer increase the likelihood of second marriages. Secondary relationships often include children from both parties. Children can create emotional challenges during life and financial confusion for the surviving spouse and the children when one of you passes away.

“Who gets the house?” is the most common question stemming from the loss of your partner. We use the word “partner” because many of these “second marriages” are not legally ratified. There are other relationships where the marriage is legal. Either of these two scenarios can exist with couples who have been together for decades.

Secondary relationships typically begin with a general understanding that mine is mine and will go to my children. The same is true for your resources and your children. In the meantime, we will live life together. As time passes, unwinding the combination of assets and emotions becomes more daunting.

Homes are more than just houses. They are shelter, and they have history. The longer you are together, presumably, the greater the value of the asset. The typical response as people age is that “Should I pass first, I don’t want my significant other forced out of the house.” The predicament arises  – legally wed or just together – where one partner brought more assets to the relationship in the beginning.

The second-largest asset most individuals own is their home.  The largest is the retirement accounts. The IRA’s and 401k’s have beneficiary declarations solving the question of who gets what. The partner with the most resources generally purchases the house. The residence is titled to that person or included in a trust.  Imagine that you are the property owner but want your surviving partner to maintain the residence upon your passing. You also don’t want your children upset by the loss of the asset. What do you do?

One option is a life estate. The typical strategy allows your surviving partner to stay in the home as long as desired, provided the surviving partner does not get remarried. Upon that person’s leaving the residence, the owner’s heirs gain access to and control the asset.

Two significant issues arise when leaving behind an asset with value and require upkeep, known as carry-costs. First, forgetting to provide a stipend for the many costs associated with homeownership can prove to be problematic in the future when the “tenant” cannot maintain the property or has no motivation to do so. Houses aren’t inexpensive simply because there is no mortgage. Second, issues can occur when people move in their new “friend” without getting married to retain control of the property. A life estate is a great option, but think through the aftermath and consider all potential issues before your passing.

Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. Contact Joe at yourlifeafterwork.com or 800-928-4001. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

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