Kristin McKenna, Senior Contributor
April 21, 2023
Losing a spouse can be an overwhelming and emotional experience. While it’s possible to organize financial documents ahead of time, there’s no way to truly prepare. Unfortunately, during the grieving process surviving spouses also need to navigate the complex financial issues that arise after the death of their partner. Here’s a financial planning checklist for surviving spouses.
What to do After the Death of a Spouse
Let’s face it, there’s a lot to do after the passing of a spouse. But not everything needs to get done today. In addition to making funeral arrangements and notifying family and friends, another priority is alerting your estate planning attorney and financial advisor.
Immediate non-financial considerations:
- Getting multiple copies of the death certificate, at least five
- Asking a friend/relative to watch the house during the funeral or memorial service. As sad as it is, burial plans are publicly available, and robberies occur
- Arrange to have any pets taken care of in-home or boarded
- If you’re planning to visit family away from the home, have the mail forwarded to that address, or to the executor, if it isn’t you
Most Common Missteps
There are also things to avoid doing. Kristin Dzialo, Trust and Estates attorney and Partner at Rubin and Rudman, LLP in Boston, Massachusetts shares the top five most common mistakes she sees new widow(er)s making:
- Letting fear and grief delay important action
- Failing to request basis adjustments or remove a spouse’s social security number from accounts
- Missing tax and other important deadlines
- Not confirming whether required minimum distributions from retirement accounts were taken before death
- Giving away property too soon. You need to be sure the estate plan authorizes you to do this, obtain appraisals and valuations, and so forth. Always consult with your attorney first as small tangibles can cause big issues.
Get Organized And Understand Your Financial Situation
After the death of a spouse, organize and take stock of your financial situation. You’ll need to gather a lot of financial documents and statements, including:
- Bank statements
- Investment account statements (brokerage and/or trust accounts)
- Retirement account statements and beneficiary designations
- Life insurance policies and beneficiaries
- Pension details
- Estate planning documents
- Tangible assets and your spouse’s personal property
- Outstanding debts or liabilities, including any mortgage or loan balances, credit card balances, and unpaid bills
Also determine how the bills are being paid, either from joint bank accounts, your spouse’s or your own account. For help finding all the accounts, ask the credit bureaus for a report and notify them of your spouse’s passing. The funeral home typically notifies the Social Security Administration. Notify current/former employers; it’s common to have employer-provided life insurance, stock options, and other benefits that may require your attention.
It’s important to make a list of everything and discuss with an attorney. For example, is a joint bill paid from a bank account your spouse owned individually? If so, you’ll likely want to update that to ensure payments will continue. Regarding credit cards, if you’re an authorized user and not the primary cardholder, you’ll also want to discuss whether or not you should make payments or even continue to use the card.
Asset Titling, Beneficiary Elections, And Probate
The estate planning attorney is going to be critical here. Hopefully, your spouse had a will and perhaps a trust set up and funded. Assets owned by your spouse individually, that don’t pass through a beneficiary designation like on a retirement account or life insurance policy, or through a transfer-on-death or payable-on-death arrangement, will likely go through probate.
There are many factors to consider, which is why it’s so important to have an attorney. Some include the state you live in, ownership at death, if there’s a will, if the asset was in a living trust, etc. The attorney will be able to advise you on everything. Typically, joint bank accounts will be updated to reflect ownership in your name only, the same for non-retirement investment accounts.
If you’re the primary beneficiary of an IRA, 401(k) or other type of retirement account, work with your financial advisor and attorney to discuss your options. Surviving spouses have a lot of choices after inheriting a retirement account. The rules regarding inherited retirement accounts have changed significantly in the last few years so don’t rely on prior guidance. For example, mandatory distributions from retirement accounts don’t begin until age 73 if your spouse was born between 1951-1959.
Generally, excluding any nuances, a surviving widow(er) who is at least full retirement age will get 100% of the highest benefit you or your spouse was receiving. Remember, you only get one benefit. So, if you were both receiving Social Security, you’ll only get one check going forward (the highest one). Benefits are reduced before full retirement age but can’t be claimed before age 60 unless disabled and at least age 50.
“Remember, your Social Security number dies with you,” Dzialo said. She always advises clients to remove their spouse’s social security number from joint accounts and close any of their spouse’s individual accounts to avoid income tax complications in the future.
Consider Your Housing Options
As the surviving spouse, you’ll need to consider housing options, like whether to sell or keep the home, or downsize. Mortgages aren’t transferrable, even if both your names are on the loan. You’ll need to pay the mortgage off or refinance into a new loan supported by your assets and income as a widow(er).
If you decide to sell the marital home, you’ll have two years from the date of death to sell and keep the full $500,000 federal gain exclusion for married couples. To do this, both spouses need to pass the use test (house was your primary home for at least two of the last five years).
Dzialo has two key pieces of advice for individuals seeking to sell the marital home. First, update your homeowners’ insurance. “This is especially important if you plan on vacating the home before it’s sold as your coverage could be voided if no one is living in the property,” she said. Second, be aware than an automatic 10-year estate tax lien release applies on all real estate. To ensure the closing isn’t delayed, “You will need to release this lien by an affidavit if no estate tax return is required, or obtain a lien release if an estate tax return is required,” Dzialo said, noting the importance of discussing this with the closing attorney.
Filing Taxes For The Year of Death
When a spouse passes away, the surviving spouse may need to file taxes for both themselves and their deceased spouse for that tax year (by April 15th of the following year). Gather all tax documents, including W-2s and 1099s, and consult a CPA for help. Also discuss with your attorney whether you need to file a federal or state estate tax return (due nine months after death). Dzialo said clients are often surprised when an estate tax return needs to be filed, even when no tax is due.
Certain non-retirement assets owned by your spouse will also be eligible for a step-up in basis to the fair market value at the date of death. The step-up could be 50% or 100% depending on the ownership and state of residency. Regardless of where you live, it doesn’t happen automatically. Your financial advisor can help with brokerage and trust accounts, but also consider other property.
For example, Dzialo said, “If you’re not selling your house right away, an appraisal will be necessary to determine the value for the basis adjustment. Even if you’re not filing an estate tax return, it’s important to assess the value of all of the assets and request basis adjustments as needed.”
- Understanding your health insurance and/or Medicare coverage options
- If the deceased spouse had stock options or equity compensation
- Reviewing your expenses and income going forward to ensure no shortfalls
- Looking for money in a PayPal or Venmo account and things like credit card points or miles
- Digital assets and social media
- Checking your state’s abandoned property records
- Updating your estate plan is important as most spouses appoint each other to all of the key roles
You Don’t Have To Do It Alone
The financial planning moves for surviving spouses after the death of a spouse can feel endless. However, support is available. Don’t rush into important financial decisions and consult with financial and legal professionals who can help you make informed decisions and secure your financial future.
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This article was reprinted with permission by Forbes. The views expressed herein are those Kristin McKenna and do not necessarily reflect the views of The H Group. This Forbes article was legally licensed through AdvisorStream.