The death of a spouse is among life’s most traumatic experiences. Survivors must cope with more than grief—they also must deal with crucial financial matters. Here is a checklist of financial actions required during the difficult days, weeks and months after a spouse’s death…
TACKLE FUNERAL EXPENSES
Funerals can cost $5,000 or more, a major expense that must be worked out within a few days of the death, assuming that arrangements haven’t already been made. Before spending this money…
- Determine whether the deceased had prepaid burial expenses. If you aren’t sure this is the case but recall your spouse mentioning something along these lines, search filing cabinets, safe-deposit boxes and checkbook registers. You might find a deed to a cemetery plot or a contract with a funeral home.
- Contact the VA if the deceased served in the military (800-827-1000, www.cem.va.gov). He/she could be eligible for benefits, including free burial or a $300 burial allowance.
- Discuss burial options with funeral directors. Consider cremation, which can cost as little as $1,000.
- Order 15 copies of the death certificate from the funeral home or local health department. These will have to be sent to life insurers to claim benefits and to banks and other financial companies to transfer titles of assets.
ALERT KEY PEOPLE
- Contact the executor of the estate. If you are the executor, ask your estate attorney to help you manage the estate-settlement process. If you don’t already have an attorney experienced with the court-supervised probate process, ask friends for referrals.
Warning:Before agreeing to work with an attorney, ask him/her how much this service will cost. A flat fee of a few thousand dollars is appropriate for a simple estate, but if you don’t ask about rates first, an attorney might charge you based on a percentage of the assets that pass through probate, which could add up to a hefty bill.
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An attorney might not be needed at all if you or a family member feels up to navigating the legal system on your own, particularly if most of your partner’s assets were jointly owned or owned through accounts that named you as beneficiary, limiting the assets that must pass through probate. Some states require an attorney’s involvement, however.
- Contact your tax preparer and financial adviser, if you have them, to ask whether there are any decisions that must be made or actions that must be taken quickly.
Example: If your spouse was older than 70½, you might have to take distributions from his IRAs to avoid a steep penalty
If your spouse previously handled the investing and taxes without help from professionals but you do not feel qualified to do so, ask friends if they can recommend financial pros.
Warning: Make sure that the planner you work with is a fee-only planner. Other types of planners might boost their commissions by selling inappropriate financial products.
GATHER IMPORTANT DOCUMENTS
A lot happens after a spouse’s death. You’ll need a good system to make sure that nothing falls through the cracks…
- Buy folders to organize all the paperwork that arrives in the weeks following the death, and separate it into categories, such as “Funeral” and “Financial Statements.”
- Locate your spouse’s estate documents. These include the will and trust documents. Also, gather his key personal documents, such as a birth certificate, your marriage certificate, Social Security card (or at least the Social Security number), citizenship papers and military discharge papers.
- Gather paperwork that details the deceased’s assets, including financial account statements, insurance policies and real estate documents.
- Update your own estate documents and accounts to name someone other than your spouse as your beneficiary or agent.
TAKE CHARGE OF FINANCES
Postpone, if possible, major financial decisions until things settle down emotionally, even if that means waiting a full year after your spouse dies. This most likely isn’t the time to sell your house or liquidate your portfolio to buy an annuity.
- Check bank accounts and income streams to confirm that you have enough cash to pay household bills for the initial months following the death. If you think your cash flow might be insufficient to cover costs, determine which of your investments could be cashed in without penalty if necessary.
Example: Some certificates of deposit (CDs) have “death puts” that allow them to be cashed in early without penalty if the owner dies.
- Pay bills when they arrive, or immediately write their due dates on a calendar. Exception: Medical-related bills can wait if you expect that insurance payments and/or Medicare will pay a portion or all of the bill. Explain this to the billing source. If you incur a penalty for a late payment, explain the circumstances to a customer service phone rep and request that the penalty be waived.
- Make a list of all of your debts, including credit card balances and mortgages. Notify creditors of the death, and examine loan agreements for any mention of insurance that pays the debt off in the event of the borrower’s death.
You might not be legally responsible for paying loans or credit card balances that are exclusively in the deceased partner’s name—though debt collectors sometimes try to convince widows/widowers otherwise. It often is the responsibility of the deceased’s estate to pay these. However, you are responsible for continuing to make payments if you are a co-signer on the loan or credit card…the loan is secured by property that you do not wish to see repossessed…or you live in a community property state where you legally are required to pay your deceased partner’s debts. Consult your attorney.
- File a Social Security benefits claim form online or at the nearest Social Security office (800-772-1213, www.ssa.gov). A widow/widower typically can begin receiving survivor’s benefits as early as age 60 based on the deceased partner’s earnings, though those benefits will be higher if you wait until your “normal” retirement age, between 65 and 67. There also is a death benefit of $255, and minor children might be entitled to certain benefits as well.
- Decide whether to roll over your spouse’s IRAs and 401(k)s into your own IRA or continue them as beneficiary IRA/401(k)s. (Many 401(k) plans insist that surviving spouses remove money from the deceased partner’s account plan.) Rolling over this money usually makes the most sense because it often delays required distributions.
But the beneficiary IRA/401(k) option—maintaining the departed spouse’s IRA, only now with you named as its beneficiary—may be worth considering if you are younger than 59½ and have little choice but to tap these savings soon because of a lack of other assets. Money typically can be withdrawn from a beneficiary IRA without incurring early withdrawal penalties regardless of the beneficiary’s age.
- Inform college financial-aid offices of the death if you have children in college. You might qualify for increased financial aid or special hardship aid.
- Contact your partner’s employer if he still was working at the time of his death. Ask the human resources department about unpaid salary and commissions, bonuses, stock options and compensation for unused sick and vacation days. Ask whether any life insurance was provided through the workplace and whether any other benefits are available to surviving spouses.
Also, if your spouse belonged to a union or trade association, contact it to check on any benefits available.
FOLLOW UP ON INSURANCE
- Inform your life insurance agent of the death.Depending on the type of policy, you may have payout options, such as a lump-sum payment or fixed monthly payments.
- If you have been receiving health insurance through your spouse’s employer or former employer, contact the plan administrator to find out if you can retain this coverage. COBRA rules typically allow a widow/widower to remain on the former employer’s plan for up to 36 months, twice the normal time limit.
If COBRA is not an option—and you are not yet 65 and eligible for Medicare—contact health insurance providers or insurance brokers about individual coverage.
- Cancel policies, services and subscriptions that are no longer needed,or have your partner’s name removed from these if you both used them. You no longer need your former spouse’s long-term-care insurance policy, for example, and you can remove the spouse from your auto insurance policy.
Source: Kathleen M. Rehl, PhD, CFP, a fee-only financial planner based in Land O’Lakes, Florida, and a widow herself. Her husband and business partner died of cancer in 2007. She is author of Moving Forward on Your Own: A Financial Guidebook for Widows (Rehl Financial Advisors). www.KathleenRehl.com