The children and friends of the widow/widower can assist in this process by helping to make sure that some of the basics have been taken care of. Making sure the surviving spouse has adequate income to meet their expenses is critical.
First, if the surviving spouse is eligible for, or already receiving Social Security, they must check to see if it is better for them to assume their spouse’s benefit – if the payout is larger than their own. A representative from the local Social Security office can assist in this analysis.
Second, a review of all the other sources of income needs to be done. Will the surviving spouse be eligible to receive a share of the deceased spouse’s pension? If so, what forms are needed to make sure the monthly benefits continue to be paid. Did the deceased spouse have any retirement accounts (401ks, 403(b)s or 457) or IRAs or annuities that need to be converted into the surviving spouse’s name? Creating a list of all the eligible accounts is very important as you do not want to forget anything here. Usually the surviving spouse will want to convert these accounts into his/her name and NOT take a distribution.
If the spouse takes a distribution the money will become taxable to them in the year of the distribution. Many people do this unintentionally and they wind up paying more in taxes than they would have otherwise. There is an additional complexity as it related to IRAs. Here the spouse has the option to “assume” or “inherit” the IRA. By assuming the IRA they take control of the account as if it had been their’s from the beginning. If they inherit the IRA, the surviving spouse is still tied to the account as it relates to the requirements for withdrawing funds from the IRA. It most instances the surviving spouse will want to assume the IRA. This is something that should be reviewed with the family’s tax advisor.
The surviving spouse will also want to covert the title to the home and any vehicles into their own name as well, but it is not as important to do this as the investment and retirement accounts or IRAs, unless they are looking to sell these assets shortly after the spouse’s death.
Next, a complete review of the surviving spouse’s expenses should be completed. Spending normally declines with the death of a spouse as there are expenses such as food, insurance, travel and other costs that would be lower if only one person is responsible for the spending.
Immediately upon the death of the deceased spouse (if not sooner) a call should be made to the car insurance company to remove him/her as a driver. This could represent a fairly significant savings. If family members are caring for a terminally or chronically ill person right now, they may want to consider making this call before the person passes away – especially if it is evident that the person will not be driving again. All the utility bills need to be converted into the surviving spouse’s name just to make sure there would be no potential interruption in services should a problem arise.
Once all the expenses are compiled a simple comparison needs to be made to find out if the surviving spouse will be in a surplus or a deficit situation at the end of each month. If it is a deficit, a further determination needs to be made to see how much money will be needed from his/her retirement accounts to cover the expenses. If the money needed exceeds more than 5 percent of the value of all retirement and investment accounts added together, then there may be a need to cut expenses somewhere. Otherwise, the surviving spouse will be in jeopardy of outliving his/her money. This is especially important for young widow/widowers.
It is very difficult to think about financial matters at a time when a family has been torn apart by the death of the father or mother. Proper planning before and after the death will not only save the surviving spouse money, but potentially a fair amount of aggravation. As always, if the family feels like there is too much to think about, it may make sense to consult a competent professional to help take care of types of things. At a minimum this professional should be a certified financial planner and have experience in assisting families through these types of situations.
Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Family Wealth Services, LLC and Cambridge are not affiliated.
Jim Heisler, CFP®, CDFA™, CASL™
Family Wealth Services, LLC
8725 Frankford Avenue
Philadelphia, PA 19136