This is the second in a three-part blog series related to financial items to consider if your spouse passes away. This post takes a look at insurance and cash flow. Part 1 focused on financial issues related to estate settlement. Future topics will include taxes, investments, and other assets.
One of the hardest things in the loss of a spouse is adjusting to living without your loved one in everyday life. First, there’s the emotional toll of your own grief. That sadness in conjunction with supporting kids and family members in their loss, taking over shared household responsibilities, and learning to manage new roles can be overwhelming. Often, married couples have combined finances with one partner managing their financial life. When the spouse more familiar with the couple’s finances passes away, the surviving spouse is left with a lot to learn. Here we look at cash flow issues, including insurance, for the surviving spouse.
Diminished cash flow can be one of the first effects felt with a death. Funeral costs and final expenses, possible medical bills, and travel expenses for family members add up quickly. Meanwhile, immediate access to cash can be limited before insurance benefits are received. Careful consideration of the following questions can help ease the financial burdens faced by the surviving spouse.
What Insurance Benefits Are Available?
Individual life insurance is one of the best ways to protect a surviving spouse and children. It is important for the surviving spouse to know what insurance policies are in place, the monetary value of the policy, and the expiration date. If term policies exist, you will need to make a claim on the active policies. An insurance professional or financial advisor can help you understand riders included on the policy, as some have additional provisions (such as accidental death) for higher benefits. Generally, the payout from the policy is made within 60 days of the claim.
If your spouse was employed at the time of death, a group life insurance policy through his or her employer or union might provide a death benefit. And if the death was accidental or work-related, additional benefits may be available.
Also, if your spouse was a veteran, you may be eligible for death and burial benefits, survivor’s pension, and additional benefits.
What Is Your Social Security Eligibility?
In specific situations, surviving spouses and children are eligible for Social Security benefits on their loved one’s employment history. It’s important to be aware of the stipulations in receiving spousal benefits to not lose eligibility. Click here to view a flowchart outlining when a spouse is eligible on the deceased spouse’s benefit. (A word of caution: This flowchart is complicated and can easily be misread. It’s a good resource for education, but please proceed with caution if you’re using it to make any financial decisions.) If you’re a client, we are happy to talk through eligibility requirements with you.
Children, too, can receive benefits on their parent’s employment history if they fall within specific requirements. The Social Security Administration outlines the requirements for children, which you can see here. Even with the help of resources like the flowchart and SSA.gov publication shared here, eligibility for Social Security benefits for surviving spouses and children can be difficult to determine. A financial advisor can help you answer these types of questions.
Are There IRAs With Required Minimum Distributions?
If your spouse had reached the date to begin taking a required minimum distribution (RMD) on his or her IRA (or was taking an RMD from an inherited IRA) at the time of death, any remaining RMD amount must be satisfied before the end of the year.
In planning for ongoing RMDs as the beneficiary to your spouse’s IRA, you will want to consider whether to roll it over into your own IRA or keep it as an inherited IRA. To determine what’s best in your situation, talk through these options with a financial advisor.
Did Your Spouse Have a Pension?
If your spouse received a pension, that benefit could be decreased or eliminated at death. This makes a difference as you review your plan for cash flow and spending.
How Will Your Income & Expense Plan Change?
The death of a spouse often means loss of income and a change in expenses. It is important to review both. Getting a handle on the change in income and expenses will likely take time as final expenses get paid and insurance benefits are received. It is important to understand how these fluctuations affect future spending.
Death and financial challenges are two of life’s top stressors. Combined, they make for an especially heavy burden. Most often, we cannot predict death, but it is possible to prepare and have an organized financial plan in place before a spouse dies. A book such as I’m Dead, Now What? (Peter Pauper Press, 2015) organizes your business affairs comprehensively and in one place. Even a simple three-ring binder that includes all end-of-life information helps ease some of the stress for loved ones.
Information and education are valuable resources. But nothing replaces trustworthy relationships when walking through life’s most difficult challenges. One such relationship is that of an experienced financial advisor who will walk alongside you in your grief, guide your decision-making, and help you achieve your financial goals. We at Flagstone are sensitive to the challenges of such a time and knowledgeable in comprehensive planning for our clients’ futures.
If you don’t feel organized or prepared for life’s challenges, we can help. Contact us to learn how. For a free checklist of issues to consider when a spouse passes away, click here and enter your contact information.