Without a doubt, the death of a spouse leaves enormous emotional tumult. But what about the more practical issues related to this loss? The financial side of things? Certainly, money is the last thing one wants to think about when grieving, but unfortunately, it can ben necessary for those left behind. Optimally, there will have been some time for planning before this event, but that is not always possible. Here are some items that you will want to address when dealing with the death of a spouse.
Insurance Considerations
- Was your spouse’s death accidental or work-related? If so, you can investigate whether certain financial institutions and professional associations will offer a lump-sum benefit. You may also qualify for worker’s compensation or death benefits through the state, and your spouse’s employer may also provide additional death benefits. It’s also a good idea to review your life insurance policy to see if there is an “accidental death” provision that would offer higher benefits.
- Was your spouse a veteran? If this is the case, you may qualify for death and burial benefits, survivor pension, and other benefits.
- Did you or your spouse have a child younger than 18 or a child with a permanent disability? If so, then you or this child, or possibly both, may qualify for Social security benefits.
- Are there possibly any life insurance policies owned by your spouse or policy on your spouse’s life that you may not be aware of or have not been claimed? You will need to investigate with family members and possibly those you may have worked with within the legal and insurance profession to see if there are any policies you can claim.
Investment and Asset Considerations
- Has your spouse’s death, and the circumstance that ensues, changed your risk tolerance or investment objectives? This significant change or your life could quite possibly alter some of the plans and goals you may have regarding where to live your life today and what your vision is for retirement and beyond. Speak with your advisor to discuss what changes should be made to reflect any new intentions and goals.
- If your spouse was the owner of a business, is a plan needed to transfer or sell? What happens to a business when the owner dies depends mainly on what type of business it is. Is it a sole proprietorship, a general partnership, or possibly a corporation or other business entity? This is an area where preparation is ideal, as it can get to be quite complicated for the family of the deceased. One such tool a business owner can use to prepare for this circumstance is called a buy-sell agreement (BSA). This agreement dictates the transfer of ownership interests in a fair and organized manner. Also, ensuring a valid will is in place will solidify that the wishes of the owner be honored, and the transfers of ownership and interests happen as intended.
- Does your spouse have grants, stock options, or restricted stock units? Or annuities or other illiquid assets? If so, it’s essential to look at how this may impact your cash flow planning and tax liability. You can discuss with your fiduciary financial advisor to discuss options and how to adapt your plan to these circumstances best.
Tax Considerations
- Did you and your spouse jointly own a home? If your home sells within two years of your spouse’s death, and other conditions are met, you still may qualify for $500,000 capital gains housing exclusion.
- Did you and your spouse own property jointly? If you and your deceased spouse owned property together, the assets passing from your spouse may get a step-up in basis.
- Not including any estate taxes, have all of your spouse’s prior taxes been paid? It’s best to contact the IRS and your state’s tax authority to pay taxes or see if any back taxes are due.
- Do you have a dependent child? If so, you could possibly utilize the Qualifying Widow(er) tax filing status for the two years following the year your spouse passed away.
Cash Flow Considerations
- Do you anticipate your cash flow needs will change? If you feel that your cash flow needs will be different following your spouse’s death, it would be useful to create a new income and expense plan with your fiduciary financial advisor.
- Was your spouse taking an RMD from an inherited IRA at the time of death, or did your spouse reach their Required Beginning Date? If this is the case, the CARES Act waives all RMD’s for 2020, so the beneficiaries need not take action. Typically, beneficiaries would have to take all remaining RMDs on behalf of your spouse in the year of death.
- Was your spouse receiving Social Security benefits at their time of death? If you collect from a government pension, you could qualify for a Government Pension Offset if these earnings were not subject to Social Security Taxes. You may also be eligible for survivor benefits, so be sure to inquire.
Estate Planning Considerations
- Did your spouse have a will when he or she passed away? If not, a family member or yourself will likely need to be appointed as executor of the estate. The estate will be subject to the interstate rules of that state.
- Do you feel as if you have more assets than you need to maintain your lifestyle? If this is the case and you have valid contingent beneficiaries names, you may choose to disclaim some assets left to you and shift them to other beneficiaries. Keep in mind; this must be done within nine months of the date of death.
- Will your spouse’s estate exceed $11,580,000, or will your combined estate be greater than $23,160,000? If this is so, you may have a federal estate tax liability due from you. Make sure to keep within your calculations any life insurance policy proceeds and the values of any retirement accounts. To keep the portability of unused exemption, you need to file IRS form 706. Typically, Form 706 is due nine months from the date of your spouse’s death, with a six-month extension available. But, if form 706 is filed to elect portability only, it is due within two years of death.
- Could there be some assets or property not identified yet? If so, take some time to check for the existence of safety deposit boxes. Also, Search state agencies and unclaimed property sites that are run by state treasurers. Finally, check with your credit card company to see if there are any “points” or “miles” that may be on a card that is transferrable to you.
While the emotional impact of losing your spouse is without question colossal, the more practical issues related to the passing of a spouse can also be quite stressful and challenging to navigate. Don’t hesitate to lean on family and friends when you need to and enlist professionals such as a trusted attorney or fiduciary financial advisor to help you create a successful plan.
If you would like to discuss this topic further or would like to set up a complimentary assessment, contact Farther-FamilyVest today
Farther-FamilyVest is your local Fiduciary Financial Advisor in Destin and fiduciary financial advisor on 30A!