In a recent meeting, I was asked, “What happens, financially, when one of us dies?” It’s a topic we don’t discuss all that often, given that all of us will face the same fate. In this article, I’ll address this question from two perspectives, 1. What actions are generally required after the death of a spouse, and 2. What might we consider incorporating into our planning to better prepare in advance of the death of a spouse?
To address the post-death actions of a widowed person, I’ve asked Estate Planning Attorney, Richard Chamberlain, to help. He suggests the following:
1. Take some time to grieve and take care of yourself. Nothing needs to be done right away, as long as you have access to funds to live on for a while.
2. Collect all of the information on your spouse’s assets, including bank, investment and retirement account statements, life insurance policies, real estate deeds, and car titles.
3. Schedule a meeting with your financial advisor and attorney to review all of the asset information to determine what needs to be done with each of the assets. We generally suggest that we have a meeting within a month or so from the date of death. Your advisors can help you with transferring assets to you, either through joint ownership, beneficiary designations, or trust administration as the case may be.
In light of Richard’s recommendations, what might you do now to better prepare for the death of you or your spouse? Naturally, you should seek the services of an estate planning attorney to build a proper estate plan that will meet all of your planning needs and goals. Doing that can provide incredible peace about your financial and legal matters, requiring you to think ahead to what you’d like to happen before it does.
In addition to the peace of mind that comes from having your estate plan in place, there’s an added benefit to planning in advance: as a part of the planning all of your asset information is collected and integrated into your overall planning. This makes step #2 above much less of a daunting task for the surviving spouse. Too often, we see the surviving spouse – who may not be the one most familiar with your finances – struggle to find and make sense of all of the financial information. Planning in advance makes the process so much easier than having to try to find the information in a time of grief and stress.
Here are some tips you might consider when building a retirement plan:
- Align survivorship benefits with your likely income needs. Pensions, annuities, and Social Security benefits allow for options for the widowed spouse. For example, choosing a ‘50% Joint And Survivor’ benefit on a company or government pension allows the widowed spouse to receive half (50%) of their spouses pension income for life, should they pass away first. By coordinating these various benefits, the surviving spouse can rest assured that there will be adequate income for his or her life.
- Consider life insurance benefits. Many couples have older life insurance policies, often purchased when kids were young and when a mortgage was still needing to be paid off. By evaluating whether life insurance is necessary, and if so how much, you may decide to either drop the coverage or alter the type of coverage to better suit your needs. Naturally, this must be done before a health decline to allow for the most options.
- Be aware of a change in tax filing status. When a spouse dies, the widowed person will generally shift from ‘Married Filing Jointly’ to “Single.’ While this may seem obvious, single filers have lower income thresholds, resulting in the same level of income leading to a higher tax rate. This may be offset by the reduction of income resulting from a loss of some pension and Social Security benefits, but not always. Again, coordinating income sources with an understanding of tax consequences is a prudent step to take when building a retirement plan.
- Discuss what you’d like your investments to accomplish for your spouse post-death. Most couples compromise with one another on how much risk they’d be willing to take to meet their investing objectives. When one spouse passes, that need to compromise goes away. As a result, how investments are handled can often change. While this may be a natural result of two becoming one, discuss this with your advisor so that changes do not cause financial harm.
- Again, consider creating a formal estate plan with an estate planning attorney. The benefits far outweigh the cost, and the peace of mind can pay great dividends.
A pleasant discussion this is not. When the call comes into our office that someone has passed away, the first question is usually “What do we need to do?” By getting this planning underway now, the answer to that question becomes much easier. “Grieve…we’ll connect later; the plan has already been put into place.”
Please let us know how we can help you sort through these areas with you.
All the best,
Adam Cufr, RICP®