How to Deal with the Death of a Spouse From a Financial Perspective - Rodgers & Associates

How to Deal with the Death of a Spouse From a Financial Perspective

It will come as no surprise that the death of a spouse is consis­tently listed as one of the most stressful life events a person will face. Death is part of life but even when it is expected, it still causes signif­icant stress. Our hearts are broken as we grieve for our spouse, and our lives are seriously disrupted.

The period following their death can evoke a lot of different emotions—shock, sadness, despair, anger and denial. Stress can also increase if the spouse who dies is the one who normally handles the finances for the household.

Give yourself a little time to adjust before you start handling the financial end of things. Facing your loss can ultimately help you as you work to adapt to the new condi­tions of your life. This period of adjustment can last for several years. During this time, it’s important to surround yourself with people you trust—family, friends, support groups, and professionals—who can offer support and advice that’s in your best interest.

Even if you’ve always handled your family’s finances, the number of financial and legal matters that must be settled in the weeks and months following your loved one’s death can be overwhelming. Here are some important financial issues that will need to be dealt with in the short term.

Important documents and financial records

You’ll need to locate your spouse’s will and other estate planning documents, insurance policies, bank and brokerage state­ments, stock and bond certifi­cates, deeds, Social Security number, birth and marriage certifi­cates, and certified copies of the death certificate.

Letter of instruction

Many spouses write a letter of instruction in case they are the first to die. The letter is typically left with estate documents.

Read it carefully.

A letter of instruction is simply a letter written by or on behalf of the deceased. It enables a surviving spouse or another person to locate important documents such as bank accounts, life insurance policies, safe deposit boxes, or collectibles.

Professional help

Getting expert help from an attorney, accountant, and/or financial adviser can be invaluable during this stressful time. Consider bringing a family member or friend with you to meetings so you will have an extra pair of eyes and ears to process information.

Settling the estate

Most people name their spouse as their executor. The named executor in the will is respon­sible for carrying out the terms of the will and settling the estate. Settling the estate means following certain legal and admin­is­trative proce­dures to make sure that all debts of the estate are paid and that all assets are distributed to the rightful persons.

Life insurance

A claim will need to be filed for life insurance benefits. Contact the insurance agent to begin filing a claim (if you don’t have an agent, contact the company directly). Most claims take only a few days to process. Be sure to check with your spouse’s employer to determine if any group benefits are available.

Social Security

Contact the Social Security Admin­is­tration to determine if there are spousal benefits available. You may be eligible to file a claim for retirement, survivor, or death benefits.

If you qualify, six months of retroactive benefits are available. However, you must file within a specified time period. You may also be entitled to the $255 lump-sum death benefit.

Government benefits

If your spouse ever served in the military or in some other form of government employment, you and your children may qualify for a separate survivor’s benefit.

The Department of Veterans Affairs, formerly known as the Veterans Admin­is­tration, may even provide educa­tional assis­tance, home loans, federal job preference, or other assistance.

If you are the widow or widower of a former federal, state, or local government worker, contact the Federal Employees Retirement System (FERS) or the local organi­zation that coordi­nates benefits for state, county, or municipal employees.

Short-term expenses

There will be some immediate expenses to take care of, such as funeral costs or outstanding debts your spouse may have incurred. A financial adviser may be able to help determine the best way to handle these expenses until insurance proceeds or estate settlement money is available.

If your name does not appear on an account, either as a joint owner or a benefi­ciary, you probably won’t have access until the estate is settled. Even if you are named as agent in your spouse’s power of attorney, that autho­rization ends upon death.

You should avoid making hasty and signif­icant financial decisions that may be emotionally driven. For example, don’t commit to moving from your current home until you can make a decision based on reason instead of emotion. Don’t spend money impulsively.

Don’t cave in to pressure to sell or give away your spouse’s posses­sions. Find out where you stand finan­cially before you make any large purchases, sell a property, or loan money to others.

Here are some important financial issues that will need to be addressed in the long-term:

Life insurance & estate proceeds

You may need to talk to a financial adviser about how to invest any life insurance proceeds or estate settlement money you receive. This would be the proper time to review your assets and liabil­ities and under­stand how you’ll meet your short- and long-term spending needs.

Establish a budget by looking at your monthly income and routine living expenses, and make adjust­ments as needed. As you work with a financial profes­sional, make sure he or she is responsive to what you say you need, not what your adviser thinks you want.

Don’t be afraid to ask questions, and make sure you under­stand all your options before making important decisions.

Retirement accounts

If your spouse was part of a profit-sharing plan, 401(k) plan, Keogh plan (for self-employed workers), or some other plan, you must consider how the benefits will be distributed to you.

Usually, the most advan­ta­geous strategy with an IRA or 401(k) is to roll over the account into a new account in your own name. This keeps the funds tax sheltered until you retire and begin withdrawals. Contact the plan administrator.

Your accountant and/or financial adviser can help guide you toward making the best choice for your situation.

Update Estate documents

After you have settled your spouse’s affairs, you will need to review your plans. If you have your own will, you probably need to name a new estate executor and a new guardian for your children. You’ll also need to have certain documents rewritten, such as a power of attorney, letter of instruction, or living will.

This will also be the time to update benefi­ciary desig­na­tions on your life insurance, retirement plan, IRA, employee benefits, annuity, etc.

Income taxes

As the surviving spouse, you have several filing choices that may be appro­priate. You may be able to choose married filing jointly, married filing separately, quali­fying widow(er), or head of household. Regardless of whether you file a joint return or a separate return for your spouse, you must write “DECEASED” across the top of the return, along with your spouse’s name and date of death.

Your accountant or tax profes­sional can help you evaluate the best filing status to choose.

As you move forward with your life, remember that at times it may be two steps forward and one step back. Take comfort in the fact that you are doing the best you can to make the best decisions—financial and otherwise—for yourself and your family.

Rick’s Tips:

  • It is a smart idea to write a letter of instruction to your spouse to help them with the important financial decisions they must make after your death.
  • Life insurance benefits are not automatic; you must file a claim for them.
  • There are several financial tasks that must be done promptly. Ask family or friends for help if some matters are too overwhelming to tackle alone.