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When you think about the financial legacy you'll leave behind, it's likely your children or maybe a charity come to mind. An important aspect of a financial legacy is to also provide financial security for the surviving spouse. Here are some considerations to get you started.
Survivor Income Needs
To appropriately estimate the survivor's income needs, you need to look at income coming in and the spending that's going out. For starters, outline your sources of income, identifying any income specifically tied to a spouse that may be affected by death. Don't forget to consider potential tax changes that could occur when moving from joint to single tax rates. Look into life insurance or a single or joint life annuity to provide a specified income. It's also important to explore delaying taking Social Security benefits for the higher-earning spouse in order to maximize the survivor benefits for the surviving spouse.
To estimate the survivor's spending needs, list your household expenses both fixed (housing, property taxes, utilities) and those that may decline due to the death of a spouse (food, entertainment). The surviving spouse, now a widow or widower, may incur additional long-term care costs. Almost 80% of women age 65 today will need some form of long-term care compared to fewer than 60% of men the same age.1
Ensure the assets that will pass to your spouse do so as desired, based upon trust or beneficiary designations. This could include a business or any other asset the survivor may need to sell to provide for his or her income needs. If you have the possibility of a taxable estate, you'll also want to discuss with your legal and tax professionals the trade-offs between a Credit Shelter Trust and using portability provisions.
Get Your Documents in Order
Keep a record of all financial assets, including investment accounts, life insurance policies and legal documents, and detail the location of the original documents. Review all beneficiary designations and make sure they're accurate. And don’t forget to make sure both of you know the location of these documents.
Have an Open Discussion
While it may be an uncomfortable discussion to get started, it is important to proactively plan for the financial security of the surviving spouse. You'll also want to discuss your legacy goals, perhaps leaving assets to charity, and how these goals may affect the financial resources available for retirement and the surviving spouse. We also recommend both spouses have this conversation with your financial advisor to help ensure your questions are all answered and that your paperwork is in order. And, if needed, our advisors regularly work with our clients' other trusted partners, such as tax and legal professionals.
Source: 1D.C. Office on Aging, LTCfacts.org, "Understanding Long-term Care," accessed Sept. 11, 2014
Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.