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Are You Financially Prepared For The Death Of Your Spouse?

Traci Taylor

Over the summer I lost a father figure to pancreatic cancer.  As if his passing weren’t heart wrenching enough, I’ve had to watch the love of his life struggle to make ends meet because everything landed in her lap with his passing.

I was talking to a friend a few months ago and I said I felt helpless because I wanted to do something, but didn’t know where to start.  I mentioned that I wished there were a hotline for people to call when something catastrophic such as the loss of a spouse happened so that they could get sound advice on what the proper steps are to take to make sure that they would be able to continue to have a roof over their head and food on their plate.

My own Dad is very sick and my Mom isn’t ready to start talking about the what-if’s and I certainly don’t want ANYTHING to happen to my Dad, but I’ve started doing a little research so that in the event the worst happens, plans are in place.

I’ve never been through it, but I know that the death of a spouse is one of the most devastating events of a person’s life. It’s easy for the surviving spouse to look at the piling bills and, well, freak out.  But experts offer this huge piece of advice: make no financial decisions for six months to a year. Don’t put your house on the market. Don’t give away money to your children or charity. Don’t sell stocks or bonds. And don’t agree to move in with an adult child.  All of these things make perfect sense, but you need a few months to be still and process everything.

I know this is going to sound calloused, but if you’re married, you need to be prepared for the loss of your spouse.  We want to think that everything is always going to be roses forever, but the fact of the matter is, it won’t be.  If you work together, you can make sure that if something happens to the other of you, the surviving spouse will be ok.  And isn’t that what you really want?

The checklist below from Kiplinger can not only help you prepare, but can also help surviving spouses figure out which financial tasks need to be addressed right away:

  • Gather the documents. If your late spouse ran the household finances, it would be great if he left behind an organized filing system as well as all the passwords you need to access computer files. But if you need to dig through the piles yourself, use colored manila folders. Among the headings: banking, bills, credit-card statements, taxes, life insurance policies and estate documents.
  • You’ll need to gather Social Security numbers, birth and marriage certificates, military discharge papers, company benefits booklets, car titles, powers of attorney, and current statements for bank, brokerage and retirement accounts. Get 10 to 25 copies of your spouse’s death certificate. The funeral director can help with this. Many financial institutions require a death certificate to close an account or to change ownership of investments.
  • You’ll need the certificate to transfer title on real estate and to claim life insurance and veterans benefits. Make sure to pay your bills for credit cards, utilities, car loans, property tax, insurance premiums and the mortgage. You could incur late charges if you let these tasks slide. (If you are hit with such charges, ask for a waiver due to the circumstances.) Notify Medicare and other health insurance companies that you will no longer pay your spouse’s premiums. Also cancel club memberships and magazine subscriptions that you don’t need. Explain the situation and you may get a partial refund.
  • Create a “financial support team.” The group could include an accountant, a lawyer, a financial planner, and a trusted friend or family member who has good financial skills. “In the first six months, you’re in a state of shock,” says Simon, a widower who counts many surviving spouses among his clients. “Your team can help you when you’re least able to attend to details.”
  • Assess your cash flow. While you should postpone big financial decisions, you should take stock quickly of your expenses and income. Make a list of your income sources: Social Security, pension payments, dividends, interest, job earnings and IRA distributions.
  • Write down your fixed expenses, such as groceries, mortgage payments, utilities and insurance. Check your deceased spouse’s check register, too. Make a separate list for your discretionary costs, such as gift s and travel.
  • Some income payments may decline. For instance, if your husband was receiving a Social Security benefit and you were getting a 50% spousal benefit, the spousal benefit will disappear. But some expenses will end as well, such as your spouse’s Medicare premiums.
  • If you are short on cash, start chipping away on the discretionary spending.
  • Collect life insurance benefits. If you can’t find the life insurance policy and you don’t have an agent, go through checkbook registers and canceled checks to see if there were any checks written to an insurance company. For a fee, the MIB Solutions’ Policy Locator Service (www.policylocator.com) might help you find the application. Your spouse also may have had a group policy through an employer or former employer or professional or fraternal organizations.
  • When you file a claim, you may have choices regarding how you will receive the money. Read the fine print carefully. In some cases, an insurance company will place your funds into its own money-market funds and send you a checkbook. Turn down this option, and then place the money in a federally insured bank account or a money-market fund. If you’re instead considering guaranteed monthly payments for life, seek the advice of your lawyer or financial adviser.
  • Prepare the estate. Until you meet with your estate lawyer, hold off on placing your spouse’s assets in your own name. If you touch assets in your spouse’s name, you’ll lose any opportunity to “disclaim” the property — that is, allowing those assets to go directly to your children or other heirs. If you forgo these assets, they will not count against your federal or state estate-tax exemption when you die.
  • You have nine months from the date of your spouse’s death to file a federal estate-tax return. Some states have earlier deadlines for filing returns for state estate and inheritance taxes.
  • Assuming you had named your spouse to make financial and health-care decisions on your behalf in the event you became incapacitated, you will need to designate a new agent for your financial power of attorney, health-care power of attorney and health-care directive.
  • Check with the employer. If your spouse was employed at the time of his death, call the benefits administrator to ask about benefits due to you. Besides life insurance, these can include unpaid salary and bonuses, accrued vacation and sick pay, left over funds in a medical flexible spending account, and stock options.
  • If your spouse had a 401(k), it makes the most sense to roll the account into an IRA — assuming you get the go — ahead from your estate lawyer. If your spouse still had accounts from former employers, consolidate them into one IRA. The custodial firm that holds your IRA can help with the paperwork.
  • The 401(k)-to-IRA rollover can be dicey. Ask the 401(k) administrator to make a direct transfer to the IRA. If the plan instead sends you a check, get it into the IRA within 60 days. If you miss the 60-day cutoff, the IRS will consider the money to be a withdrawal and you will pay tax on the entire amount.
  • If you were receiving health coverage under your spouse’s employer plan, you may be able to continue on the group plan for 36 months through COBRA coverage. (An employer with fewer than 20 employees is not required to provide COBRA coverage.) Ask the plan administrator if the company will continue picking up the employer’s premium subsidy.
  • Roll over an IRA. If you are the only beneficiary of your spouse’s IRA, you can roll the retirement plan into your own IRA tax-free. (There are other steps you must take if you are one of several beneficiaries.) Before doing so, make sure your spouse, if he was 70 1/2 or older, took his required minimum distribution before he died. If he didn’t, you must take his RMD by December 31 in the year he died or pay a penalty.
  • In the following years, after you’ve rolled the plan into your own IRA, you can skip distributions until you’re 70 1/2, allowing the account to grow tax-free. Once you turn 70 1/2, your required distributions will be based on your life expectancy.
  • It may be wise to forgo a rollover if you’re younger than 59 1/2 and need to tap the account. By leaving the account in your spouse’s name and remaining as a “beneficiary,” you will not pay a 10% penalty on any withdrawals. After you turn 59 1/2, you can roll the account into your own. If your spouse left you a Roth IRA, you can claim the Roth IRA as your own, in which case distributions are never required during your lifetime.
  • Claim a Social Security benefit. A widow or widower is entitled to a survivor benefit that is equal to 100% of the deceased spouse’s benefit, as long as the survivor waits until full retirement age to collect. You can collect a survivor benefit as early as 60, but your benefit will be permanently reduced a bit for each month you claim before your full retirement age. (It’s reduced by 28.5% if you claim at 60.)
  • If you were collecting a spousal benefit, you can “step up” to a survivor benefit. At that point, the spousal benefit will disappear. If you are younger than full retirement age and decide to wait to claim the full survivor benefit, you will stop receiving the spousal benefit. If your husband dies before claiming a benefit, you will be eligible for a survivor benefit equal to the benefit he was entitled to at the time of his death.

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