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Financial Moves You Must Make When a Spouse Dies

The financial work you have to do when a spouse is laid to rest

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Death is inevitable, and if you have a partner, one of you is highly likely to pass away first. This will leave the surviving spouse with financial tasks and decisions to make. Some of these tasks are critical and the surviving spouse needs to do them fairly quickly, all while grieving the loss of their partner in life.

My first recommendation is to prepare for the inevitable. Simplify your finances by decluttering the number of accounts you have, and make sure both of you are also partners in your financial matters so the other isn’t left clueless. This also protects both of you in case of cognitive decline. Make sure your spouse knows your wishes, and write them out in the appropriate estate planning documents, such as a will.

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After the Death of a Spouse is the single best guide I’ve seen explaining next financial steps for surviving spouses. It’s a new book written by Mike Piper, a CPA and adviser with a knack for explaining complex matters simply in very short books. Recognizing the grief of the surviving spouse, Piper prioritizes the tasks into two buckets — one for time-sensitive tasks and one for what can wait a bit.

Time-Sensitive Tasks

Step one is to learn some basic terms of the estate administration process and get organized. You are likely the personal representative, meaning it’s your job to administer the estate. To do this, you’ll need several important documents. Be sure to get five to 10 original death certificates: Financial institutions and others will need to see them before they can do anything for you. But don’t stop there. You will need bank and brokerage statements, veteran’s discharge papers and tax returns. I’ve found that often the tax return helps you to discover accounts you never even knew existed. It’s critical to take notes as you gather these documents. You need to quickly notify certain parties of your spouse’s death. The list includes financial institutions, the IRS, Department of Motor Vehicles, Social Security, the spouse’s employer and others. Cancel accounts for recurring services or products in your spouse’s name if you are not using the service or product.

As the personal representative, you may need to have a court officially make the appointment, and you will have a fiduciary duty to assure that all creditors get paid before assets are distributed. You’ll also need to collect any funds that are due to your spouse. You will likely need to obtain a tax ID for the estate from the IRS. Take an inventory of all material assets and liabilities. Finally, you may need to update your own estate plan, since your late spouse probably had a role in your previous plan.

Critical but Less Time-Sensitive Tasks

Social Security is typically a key source of your income. If your spouse had the higher benefit, you are likely entitled to receive that benefit, but your own monthly check will stop. You may be entitled to other benefits as well, such as a widow(er) benefit or a benefit if you have a disabled child. If your spouse had an IRA, you are probably the beneficiary and can either roll it into yours, keep it as a separate inherited IRA or even disclaim it if, for example, you want it to go directly to the kids.

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Even death doesn’t escape taxes, and you will likely have to file a final tax return in addition to a return for the estate itself using that tax ID discussed previously. If you have a child living with you, you may be able to file your return for the next two years as a qualifying surviving spouse, which gives you a lower tax rate than filing single.

Next, reassess your own finances. Your income may be lower, but your expenses may be as well. After totaling your assets, examine how much you can spend. I call this the safe spend rate. Look at the entire portfolio and assess the risk you need to take. Make sure your costs are low and that you are diversified. As always, I recommend simple low-cost index funds.

You have a lot to do and, understandably, you may need help. If you need an attorney, find one that specializes in estate planning and administration. You may need a CPA or other tax professional to assist as well as a financial planner. Ask others who they turned to and interview them. If you are using a financial planner, make sure you understand and agree with the investment strategy they propose. Many so-called planners regularly surf the obituaries and are salespeople in disguise.

I certainly understand that the financial tasks of dealing with the death of a spouse can be overwhelming at a time when you want to grieve. Be forgiving to yourself as this is likely the most difficult time in your life. And consider seeking mental health counseling. Piper notes firsthand from his experiences how helpful that can be and, based on my own experience, I agree.

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