Be Prepared for Widowhood

No doubt, the COVID-19 pandemic was a difficult period to endure, but it also taught us many valuable lessons. One thing we learned was the importance of planning in case we encountered serious illness or death. The pandemic motivated some people to create or update their wills and estate plans, as well as draft documents related to power of attorney (POA) for financial or health care matters.

It’s never pleasant to think about, but getting affairs in order and preparing for the death of a loved one is essential for the survivors as they try to carry on. Planning as far ahead as circumstances allow may help alleviate some stress and uncertainty at a time of immense grief when it could be tough to think clearly.

It’s also prudent from a financial standpoint, especially for surviving spouses when their partner dies suddenly and they face major changes to their finances. For instance, let’s assume one spouse seems likely to pass away soon. If that spouse was working and earning an income, then their income is lost and may impact financial concerns like mortgage payments, existing credit card or other debt, managing daily expenses, etc. If both spouses are retired, the amount of the household’s Social Security benefits could be cut in half. It’s good to have a plan regarding how to compensate for any lost income.

Take action now

Not being prepared may cause significant hardship for you as the survivor, so let’s consider 10 important things to do now if your spouse’s death appears imminent in order to avoid serious financial issues later.

1. Document all log-in credentials for bills (and when each bill is due), investment/brokerage accounts, bank accounts, etc. While many couples maintain joint accounts, it’s also common for each partner to have their own. Make a complete list of every account, including the institution name, account number, log-in name, password and any other pertinent details.
2. Find copies (physical and/or digital versions) of important documents like life insurance policies, health coverage, pensions, etc. Know what information each document contains so you’re better prepared to take appropriate action when the time comes. As a widow, you may need to increase or expand your own insurance coverage, especially if you have young children.
3. Confirm titling for accounts and property. If both names appear on bank and other financial accounts, then assets won’t be frozen when your spouse dies, and required cash flow may continue. Alternatively, open a separate bank account in your name only and fund it with cash to ensure adequate liquidity, including to cover funeral-related expenses. Also check who’s listed as “primary” on credit cards, etc. and ensure you’re the sole or primary holder on at least one card.
4. Review estate plans to avoid unpleasant surprises. Are all documents (such as POAs, wills/living wills and trusts) in place and current? Are all accounts sufficiently funded/retitled according to the estate plan? Understand how assets will be distributed (e.g., if you’re in a second marriage, will some or all of your spouse’s assets go to the kids? Have large charitable donations been arranged?). Also know which assets, if any, will need to go through the probate process. You may also wish to consider making guardianship arrangements if you have young children and you unexpectedly become seriously ill or die.
5. Confirm that beneficiaries on accounts are up to date. Especially for legacy accounts that were opened before marriage, a beneficiary might not be listed, or it could be a person who should no longer be the heir (e.g., a parent or ex-spouse). The process of distributing estate assets will run more smoothly if the listed beneficiaries are accurate.
6. If your spouse is currently taking required minimum distributions (RMDs) from an IRA, confirm that these distributions have been completed for the year to avoid associated tax issues. When you inherit an IRA, you’ll need to take RMDs by December 31 of the year your spouse dies (or in the year your spouse would’ve reached age 73). Consult with a tax accountant or advisor to determine whether you’ll need (or want) to roll over your spouse’s 401(k) plan or other retirement account.
7. Review accounts for possible tax-saving opportunities, such as the “step-up in cost basis” upon your spouse’s passing. This may occur when an asset you inherit is valued at a price that’s higher than the original purchase price. With a step-up provision, the cost basis of the asset is deemed to be the fair market value when you inherit it, which will reduce or eliminate capital gains tax if you sell this asset. A Corient Wealth Advisor, tax accountant or estate planning specialist can assist you.
8. If your spouse engaged the services of professionals like a financial advisor, CPA or estate planning attorney—and you don’t already deal with them yourself—get to know them and allow them to become familiar with you in order to establish some type of relationship in advance.
9. Make final preparations for your spouse’s passing so you’re not scrambling to arrange everything when you’re under significant emotional and time pressure. Such arrangements may include the funeral, burial/cremation, celebration of life, etc. Doing this ahead of time could also be prudent financially, as you’ll be less likely to overpay than if you must make last-minute arrangements.
10. Find specialists to help maintain your home, if required, during the adjustment period or on an ongoing basis. If you don’t have family, friends or neighbors who can help, then this may include hiring people for lawn care, snow removal, home maintenance and repairs, etc. Get contract terms in writing so there’s no misunderstanding about costs, services, frequency, etc.

Although this list of potential actions isn’t meant to be comprehensive, it covers the major areas you’ll need to address if your spouse is about to pass away, and it may help ensure you’re in as strong a position as possible during this difficult time and into the future. Of course, feel free to contact your Corient Wealth Advisor for guidance as you deal with the financial aspects of widowhood.