What To Do When a Spouse Dies
No one likes to think about what will happen when a spouse dies, but it’s an unfortunate fact of life for a third of all Americans 65 and over. Women are more than twice as likely as men to spend several years in widowhood after the death of a spouse.
Although nothing can ease the burden of grief when a loved one dies, knowing what financial steps you should take can ease anxiety and fear about the future.
Here’s a checklist on what to do when a spouse dies to help you stay focused following one of the most devastating events in your life.
Collect the paperwork
The surviving spouse will need to gather records and documents to support claims for benefits. In addition to the will and several certified copies of the death certificate (we recommend at least 10), you’ll need insurance policy paperwork for any life, property, accident, and employer plans, birth and marriage certificates, Social Security cards, and titles to any property. If your deceased spouse was a veteran, military discharge papers may also be necessary. You’ll also need a list of assets and account numbers for any checking, savings, brokerage, loan, and credit card accounts.
⇒Action item you can do right now: Gather all your essential paperwork in a safe location and make sure both spouses know how to access it. Even if one spouse typically handles the finances, it’s important that both are aware of all assets and liabilities and where to find account statements and tax returns.
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Notify advisors and officials
You’ll need to make a lot of calls in the immediate aftermath of a spouse’s death. Start by contacting your family attorney who drafted the will and make an appointment to begin the process of settling the estate. You should also call your financial advisor so assets can be assigned to named beneficiaries. Resist the urge to cash out any investments before you meet with your advisor.
You should also contact your spouse’s current and previous employers. Speak to someone in the Human Resources department who can send you any paperwork you need to complete to collect owed wages, sick leave, vacation pay, pension payments, and death benefits. If you or your children are covered under the employer’s insurance plan, request information about continuing your coverage under COBRA.
If the death was accidental, you may be able to collect additional benefits from financial institutions, professional associations, and your spouse’s employer or union. Insurance benefits may be higher in the case of accidental death and you may be eligible for worker’s compensation and/or death benefits.
Get in touch with all banks, credit unions, and credit card companies to let them know of the death and to change account holder information.
You should also start the paperwork to collect on any life insurance policies your spouse maintained. It can take several weeks to settle claims, so it’s important to get an early start. You may also want to re-evaluate your coverage needs going forward with your insurance agent.
Notifying Medicare and Social Security
You will have to notify Social Security by phone or in person at your local office when your spouse dies; applications for death benefits cannot be completed online. The Social Security Administration may ask you to supply birth, death, and marriage certificates, military discharge papers, and W-2 forms or self-employed tax returns when you apply for the lump-sum death benefit and spousal benefits.
If you aren’t currently receiving Social Security benefits, you should apply right away, because in some cases, survivor benefits aren’t retroactive. If you are currently getting benefits, Social Security may be able to pay the death benefit right away. They’ll also automatically adjust your benefit amount to reflect survivor benefits.
It’s important to let Medicare know about the death right away so they stop collecting Part B premiums from your Social Security check.
⇒Action item you can do right now: Compile a list of contact information for important advisors and officials. Make sure to update it regularly so the information is current.
Assess your cash flow
Begin by evaluating your sources of income. These may include pension payments, Social Security benefits, dividends, interest, IRA and/or 401(k) distributions, and rental income. Note that Social Security benefits will decrease when you transition to survivor benefits. Pension payments may also be reduced or discontinued altogether after your spouse’s death. Talk to your financial advisor if your spouse was taking—or due to take—required minimum distributions so you don’t get penalized for missing a distribution.
Next, list out your fixed expenses such as mortgage, utilities, insurance premiums, and any personal loan or credit card payments. These likely won’t change much and will need to be paid every month while you wait for benefit claims to settle.
Avoiding a cash crunch
In the weeks and months following the death of a spouse, the surviving spouse has immediate needs for money but may have limited access to cash and credit. Funeral directors are required to notify Social Security of the death, and Social Security sends out a Death Notification Entry (DNE) to the Federal Reserve. This DNE effectively locks down any accounts owned solely by the deceased. Even if the surviving spouse is an authorized signer on an account, all access is denied once the DNE is received.
To make matters worse, any durable power of attorney the spouse may have had to manage finances expires when the person who authorized it dies.
It can take weeks or even months for life insurance benefits and retirement asset transfers to take place, leaving the surviving spouse without the necessary funds to cover funeral costs and living expenses.
⇒Action item you can do right now: Make sure you have at least one account jointly owned by both spouses with enough cash to cover three to six months of living expenses. Jointly owned accounts aren’t affected by DNEs, so funds will be available even when everything else is locked down.
Collect life insurance and other named benefits
There are generally no income taxes due on life insurance benefits and funds transferred to named beneficiaries from an IRA or 401(k). However, it’s still a good idea to consult a financial advisor at this stage, because you need to make important decisions about whether to use or rollover inherited funds. Retirement account funds are treated differently than other inherited assets.
For example, the surviving spouse can choose to distribute all the IRA assets on any schedule over a ten-year period following death, designate the account as an inherited IRA, or elect a spousal rollover or “fresh start” IRA. Each of these options has different tax consequences, so it’s important to consider your decision in the context of your complete financial picture.
⇒Action item you can do right now: The surviving spouse has the greatest number of options if he or she is named the primary beneficiary of your IRA and 401(k) plan. You may want to discuss your choices with your advisor and make any necessary changes to your beneficiary designations to better protect your spouse.
Settle the estate
You will need to provide the name, date of birth, Social Security number, mailing address, and contact information for everyone named in the will, including beneficiaries and fiduciaries. If someone named in the will is now deceased, you’ll need an original death certificate for that person, as well.
Plan to have everyone named in the will attend the first meeting with the estate attorney, either in person or by phone. Once the attorney has the necessary financial information, including a list of assets and liabilities, he will prepare court documents to open probate. You’ll need to provide certified copies of the probate order to all financial institutions so the attorney can settle the estate. Final settlement can take up to a year depending on the complexity of the estate, and significantly longer in some cases.
⇒Action item you can do right now: Review and update your will if any beneficiaries have died. Collect Social Security numbers for all inheritors and make sure contact information is up to date. Also, review the named beneficiaries listed on investment accounts and life insurance policies regularly to ensure these are accurate since these are settled outside of will.
Plan for taxes
Most estates will not be subject to federal or state estate taxes, and most states do not collect inheritance taxes. Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance tax laws on the books.
However, all estates are subject to income taxes. Before the estate is officially settled, the executor must file both a final individual tax return for the deceased and an estate income tax return. Any taxes owed from previous years also need to be paid during the settlement process.
Some assets have built-in tax consequences when the owner dies, such as non-Roth IRAs and annuities. These tax consequences are referred to as IRDs, or income in respect of a decedent. Other assets are eligible for a step-up in basis following the death of a spouse, but if they are sold, they may still trigger capital gains taxes even accounting for the step-up in basis.
⇒Action item you can do right now: Consult with an estate planning professional or tax attorney to evaluate your tax liability and discuss ways to structure your finances to limit the tax impact for your surviving spouse.
Other steps to take
Identity theft is a major problem. The death of a spouse opens up new risks for identity fraud, but you can take steps to eliminate them. Notify the three major credit bureaus of your spouse’s death so that no one can use his or her information to open new credit accounts. Make sure you cancel your spouse’s driver’s license for the same reason.
Digital accounts are another issue you’ll need to settle. Most social media accounts will not hand over login credentials to the surviving spouse, but you may be able to request deactivation of the account. You may need to provide proof that you have the authority to make the request, such as a copy of your driver’s license and a copy of the death certificate.
Other online accounts may have monetary value, such as Paypal or Google. You’ll need to provide a copy of the will, the death certificate, and contact information for the executor in order to collect funds in these accounts. Google has a feature called Inactive Account Manager that lets users make provisions for their “digital afterlife.” If the feature is activated, the surviving spouse has a much easier time accessing any information and money associated with the account.
⇒Action item you can do right now: Think about how you want to dispose of your digital assets and social media profiles. You may want to provide each other with login credentials to your online accounts and enable the Inactive Account Manager on your Google profile.
Thinking about what to do when a spouse dies isn’t pleasant; no one wants to contemplate that devastating event. But you can familiarize yourself with what needs to be done and put plans in place to make the process easier for the surviving spouse.
You can also visit our financial planning for widows resource library and get free access to easy to follow checklists and guides.
At Covenant Wealth Advisors, our Certified Financial Planners can help you create and manage an estate plan that covers all the contingencies for your surviving spouse and family. Together, we can organize your financial details, minimize your tax liability, and put plans in place to ensure your family keeps more of the assets you’ve worked hard to accumulate.
Get in touch today to learn the ways estate planning provides peace of mind for you and your spouse.
Mark Fonville, CFP®
Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors.
Disclosures: Covenant Wealth Advisors is a registered investment advisor. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions.
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