Sally and Frank

  • Should Sally sell one or both of her homes?
  • Should Frank sell his home?
  • Who should be the beneficiary on Frank’s 401k?
  • Do they need to redo their wills?
  • What tax implications will they have by getting married?

The Situation

Frank and Sally are entering into their second marriage.  Both of them have children from prior marriages.  Each of them has a net worth over $1 million.  However, most of Sally’s net worth is tied up in real estate: her primary residence and a second home that was inherited from her mother.  Frank has a residence as well, but his 401k account is the bulk of his net worth.  Also, Frank has recently been diagnosed with prostate cancer and is undergoing treatment.  Frank’s health problems prompted them to seek advice on how to structure their affairs before they get married.

 Questions to answer:

  • Should Sally sell one or both of her homes? Should Frank sell his home?
  • Who should be the beneficiary on Frank’s 401k?
  • Do they need to redo their wills?
  • What tax implications will they have by getting married?

Planning:

During the planning discussion Sally indicated her preference was to keep the home she inherited from her mother.  Frank agreed as well because the home is in a very desirable location and can serve as a gathering place for their extended families.  The decision was made to sell Sally’s residence and combine households into Frank’s current home.  The sale of Sally’s home will offer her some liquidity that can be used for her support if something were to happen to Frank.

The 401k beneficiary designation had been setup for his children and it was determined that it was best to leave it that way.  In the event that something were to happen to Frank, his will was redone to make a provision for Sally to remain in Frank’s home for the rest of her life, then it would pass to his children upon her death.

From a tax planning standpoint, getting married did not affect Sally’s exclusion for selling her residence.  When her husband died she received a 50% step-up in basis which along with the exclusion, helped wipe out most of her gain.  Also, since Frank was under the age where required distributions from his 401k begin, he had some flexibility with voluntary distributions toward managing their new combined tax bracket.

Ongoing:

Frank and Sally would benefit most from Continuous Service primarily because they want guidance on how financial decisions made jointly would impact their respective estates.  By managing their investments, it is essential that we understand their cash flow situation so that their investment allocations can be adjusted accordingly.  With this type of help, Frank and Sally can focus on being happily married and spending more time enjoying all of their children and grandchildren often.