The loss of a spouse or life partner is traumatic. If you or someone you know is going through this type of transition, it is important to recognize that the ability to function, to analyze information, and to make decisions can be impaired. What should you do?
Research indicates that deaths increase in winter months with a noticeable, but unexplainable, spike during the holiday season. Regardless of the time of year, losing a loved one brings the need to progress in an organized and deliberate manner and to seek the appropriate advice to avoid costly errors.
Activities that must occur immediately following the loss of a spouse or partner include contacting friends, relatives, and business associates; making decisions regarding the funeral services or implementing the pre-planned arrangements; and deciding how to honor the deceased. The more planning that was done during the decedent’s lifetime, the easier and less stressful it is to complete this initial stage.
Sage advice for relationship survivors is to avoid making major lifestyle decisions, such as moving, for six to twelve months. Waiting an appropriate amount of time will hopefully allow decisions to be made with an informed understanding of the impact and based less on emotion and fear.
Unfortunately, there are other decisions concerning financial issues that may need immediate attention. Some of those issues involve the following:
Changing title on assets and claiming IRA or life insurance benefits should be done only after meeting with an estate planning attorney. Strategies, such as disclaiming the inheritance, may prove more beneficial to the family.
IRA and other retirement account benefits can be rolled directly into a spouse’s IRA and treated as his/her own. However, depending on the need for funds, it may be more appropriate to leave the funds in the participant’s name to accelerate distributions.
Life insurance proceeds are available to the beneficiary free of income tax. Typically the proceeds will be available as a lump sum and the beneficiary can use the funds to pay the final expenses or estate taxes. The insurance professional may suggest reinvesting the life insurance proceeds in an annuity. While this strategy may be appropriate in limited circumstances, it will greatly restrict access to the funds. Wait to make this decision after thoroughly reviewing the family’s financial situation.
Whether you pay off the mortgage or other debt with liquid assets of the estate or life insurance proceeds will depend on several factors, such as the loan interest rate and the future family cash flow. Liquidating debt may provide emotional comfort, but could potentially limit other financial planning options.
Employee benefits should be addressed quickly. Earned, but unpaid salary, unused vacation time, and any remaining sick days will provide additional income and is generally provided automatically by the employer. Other benefits, such as the 401(k) savings account, pension plan, and deferred compensation, may require decisions on how to handle the proceeds prior to completing paperwork. Stock options can be more complicated and should be reviewed carefully. Vesting and expiration schedules may be accelerated due to the participant’s death.
Any unfinished business of the decedent that is in process, such as a purchase or sale transaction, should be reviewed thoroughly. First, verify that the transaction is legitimate. Second, evaluate all the options that may allow the transaction to be continued, terminated, or modified to reflect the new situation.
Notify the Social Security Administration to claim the death benefit as well as file for any survivor benefits for the spouse or eligible children. Medicare should be contacted if the decedent was receiving benefits. Likewise, if the decedent served in the military, check with the Veteran’s Administration to determine if benefits are available.
Cancel the decedent’s email, social media, and other online accounts to avoid fraud or identity theft. The procedures for each website will vary. For instance, Facebook can either have the account memorialized or deleted.
The loss of a spouse or lifetime partner creates an emotional state that is not conducive to making sound decisions or being proactive. Taking the time to organize information and to make certain decisions today can reduce the stress and anxiety created when such a situation occurs. In addition, it is important to seek the advice of your financial planner, estate attorney, and tax accountant to ensure the strategies planned during your lifetime can be appropriately implemented.
This article was contributed by Meredith Carbrey, CFP, a Wealth Advisor at Bedel Financial Consulting, Inc.
Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment. Elaine’s book, "Advice You Never Asked For… But wished you had," is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at email@example.com.