I became a financial advisor primarily to assist people experiencing life transitions. I can’t imagine a transition more difficult than losing your spouse, let alone navigating the financial steps following their passing. The necessary response is to grieve and spend time in reflection.
Unfortunately, many widows and widowers are thrown into facing tough financial and estate questions before they are ready. I only hope that the following financial tips bring direction and confidence to those who need it now, as well as consideration and preparation to those who may need this kind of guidance someday.
1. Claim the death benefit from life insurance policies
If your spouse had a life insurance policy, locate the insurance company’s phone number, which is generally found on any policy statement. Call, inform them of the death, and express desire to start the claim process (assuming you are the beneficiary). It is unlikely they will pay out the benefit quickly if they are not informed of the death, so you should not wait for them to contact you.
If your spouse was still working, check to see if their employer provided any group life insurance. Call their office and ask for the human resources department or their supervisor and explain what you need.
Tip: Insurance companies usually require a copy of the death certificate, so be sure you have it readily available to make the claim process as smooth as possible.
2. Determine if you will receive a social security benefit
You can read these policies straight from the Social Security Administration’s website. To summarize, when a spouse passes away, the surviving spouse will receive a one-time payment of $255.
If you and your spouse were already claiming social security benefits, their benefit will cease. If their monthly benefit was higher than yours, your benefit may increase to the level of your spouse’s. Still, your income may be less than you are accustomed to.
You are expected to return any social security income your spouse received in the month they passed away. I realize that this sounds heartless, but you need to be aware lest it is spent.
If you have a child together under age 16 or who is disabled, you are also entitled to benefits. I encourage you to call the Social Security Administration to determine your exact benefit.
3. Create a new budget
Your whole life may look different after loss. Your income, expenses, hobbies, and even your home may change. Once you establish your new routine, put together a list of your income and expenses.
Your new normal might take a few months or even a few years to establish. If you are unable to nail down a new budget for a while, at least be mindful of what money is coming in and where it is going.
Consider a budgeting tool like Mint.com to help.
4. Transfer investment accounts
If your spouse had a 401(k) or an IRA, you can roll their account into your own. Rather than open a Beneficiary IRA, you can tell the financial institution that you want to treat the funds as your own. This can be easier for you, and will allow you to take your Required Minimum Distributions according to your own timeline. Talk to a financial advisor to see if this is the appropriate action for you.
If you had other taxable investment accounts, start to think about consolidation. Managing your finances and investments is often much easier if they are at the same place. Start by finding the statements and calling the advisor or company. If your spouse was employed and had a 401(k), the human resources department may be able to assist.
Don’t be afraid or ashamed to ask for help!
5. Revisit your risk tolerance
Death and loss change you. Your long-term goals might look different now that your partner isn’t with you. Your whole outlook might change.
Ask an advisor to analyze your portfolio’s risk level. After an in-depth discussion about your new perspective, goals, and concerns, have your advisor help you determine if your portfolio is best suited to your possibly different risk tolerance.
6. Review your spouse’s non-traditional assets
Look into your spouse’s credit card accounts and other rewards programs. It is possible that built-up points, dollars, and miles might be transferable to the beneficiary.
Also, stop to think about any safe deposit boxes or other “non-financial” assets you might be missing.
7. Look into taxes
If your spouse had taxable investment accounts in their name, be sure the custodian credits you with the step-up in cost-basis when the assets transfer to you. This could save you a lot in taxes in the future.
You may file a joint tax return the year your spouse passes away. This should be helpful as the joint tax brackets don’t advance as quickly.
Was your spouse’s estate above $11,580,000 or is your combined estate above $23,160,000?
Most Americans don’t have to worry about this. However, if your spouse’s estate was large, there are special rules and caveats you should be aware of, such as filing a form 706. Even if you are financially savvy, I STRONGLY encourage you to work with a Certified Public Accountant who has experience with estate taxes. Large estates often require advanced planning and expertise.
Check out the American Institute of Certified Public Accountants if you need help finding a professional.
8. Update your own estate plan
As we have discussed, your perspective and situation might change dramatically after the loss of a spouse. Be sure to take plenty of time to process your thoughts and establish your own opinions.
When you are ready, revisit your own estate plan. Your will, your executors, your beneficiaries, and your powers of attorney might be different now. Read how to start this process HERE.
If you have an attorney you trust, schedule an appointment to check in. You may not have to pay full price to adjust your existing documents.
9. Do you trust your financial advisor?
70% of recent widows leave their previous advisor within a year, citing lack of relationship.
Did your advisor regularly ask your opinion?
Did they maintain eye contact with you or just your spouse?
Did they treat you as an equal partner?
You are going to change as a result of this loss. Can your current advisor change with you?
If you are looking for a change, consider using the National Association of Personal Financial Advisors to help find a fee-only advisor near you.
You may never feel ready to tackle these steps. Face one at a time and ask for support from those you trust as you move forward. I wrote these in no particular order. Although, some are more time sensitive than others.
A good financial advisor can assist you, but we cannot replace the need for time, personal reflection, familial support, or a professional counselor. Please be sure to seek support from those around you in your time of need. And when it comes to the topics discussed above as well as all other finance-related questions, we are here for you!