This article is the first in a three-part blog series related to financial items to consider if your spouse passes away. Today we’re focusing on issues related to estate settlement. In Part 2, insurance and cash flow is addressed. And in the coming weeks, we’ll also address issues related to taxes, investments, and other assets.
Losing a spouse. For many, it’s unthinkable, yet the reality is that many married people will face this life-changing event. If you or someone you care about is dealing with the death of a spouse, first take some time to mourn the loss and establish a support system. For the most part, financial decisions can wait—and probably should wait—until the surviving spouse is emotionally ready. When the time is right, here are some questions to help guide your next steps.
Ideally, married couples have solid estate plans in place long before the need arises. For readers that haven’t completed their estate planning yet, let the following questions serve as a sort of call to action. By addressing these topics now, you can spare your spouse additional stress when the unthinkable happens.
Did your spouse appoint you executor of his or her estate?
If so, contact an attorney to assist with probate proceedings. Keep in mind that the probate process takes time and varies according to state laws. Anywhere from 6 to 18 months is typical, but it can be much longer. In California, for instance, estate settlement can take 2 to 3 years.
Oftentimes, we hear from clients who aren’t confident that they will know how to act as executor (aka “personal representative”) of an estate. It’s okay if you don’t. Lean on the expertise of professionals such as an estate planning attorney. Their role is to help you through it all. They’ll make sure you follow the rules and carry out the directives in the will, and they will give you advice when necessary. If it ever becomes too much for you, you can renounce your rights as executor, but you’d want to discuss the downsides of doing that with your attorney. Hopefully a backup executor is listed; if not, the court will appoint a new one.
Did your spouse pass away without a will?
You, a family member, or a professional may need to be appointed as executor by the court. The estate will be subject to the state’s rules. The process for this differs from state to state and has the potential for complications, so it’s important to have an attorney to represent your interests.
Do you have more assets than you need to maintain your lifestyle?
That’s a good problem to have, and being proactive might save you from having to pay more taxes than necessary. If there are acceptable contingent beneficiaries, you may wish to disclaim a portion of your inheritance. Basically, you’re saying (for example), “I know my spouse wants me to have this $1,000,000 investment account, but I’ll be fine without it, so I’m going to let it go to our adult children instead.” The logic here is that if you inherit a lot of assets that you don’t need, there could be a scenario where your estate value in the future creates a large estate tax liability. You might be able to avoid having “too big” of an estate by letting the assets go to the next generation.
Pay attention to the different types of assets you’re inheriting, too. For example, if you want to disclaim $500,000 of your inheritance, you might choose to disclaim $500,000 of a Roth IRA but keep the $500,000 nonretirement account. That’s just an example, and sometimes the opposite might be more appropriate. Professionals such as an attorney, a tax professional, and a financial planner can help you weigh your options and make the best decision.
Do you have any accounts or other assets that require ownership to be updated? And will you need to update your own estate plan?
The answer to these questions is likely yes. Some estate plans or ownership types might have some “future-proofing” that allows you to take your time before making changes following your spouse’s death. However, this is a major life change that warrants a second look at everything once things settle down.
Will your spouse’s estate exceed the remaining federal estate and gift tax exclusion amount?
The amount in 2022 is $12.06 million if your spouse hadn’t already used a portion during his or her lifetime. Or, for combined estates, the amount is $24.12 million if, once again, a portion hasn’t already been used during your lifetime. This one’s tricky to calculate, so, again, lean on the professionals. But know that if your estate is pushing these limits, you might owe some federal estate tax. Remember that proceeds from a life insurance policy owned by the decedent are generally included in the estate tax calculation. If ownership was transferred to someone else or to an Irrevocable Life Insurance Trust (ILIT), the proceeds won’t be included.
Are there any other assets you might not know about?
It is common for one spouse to take charge of the family finances. If the more money-minded spouse dies first, the surviving spouse might not have a full understanding of what accounts or assets are out there. We see this more often when it’s a husband who leaves a wife behind. There are a couple of places to look beyond desk drawers, filing cabinets, and home safes. Remember to check safe deposit boxes, but be sure to follow probate rules before opening. Also search state agencies and unclaimed property sites that are run by many state treasurers. Again, you can enlist the help of an attorney to track down assets.
Are there digital assets that should be preserved?
Cryptocurrencies are more popular than ever. Does your spouse have a digital wallet somewhere? You’ll need that digital wallet to access the cryptocurrency. Other digital assets could include non-fungible tokens (NFTs). Digital files such as videos, audio files, photos, and graphics, might be stored on a local computer hard drive or in a cloud database. You may need to gain access to those digital storage locations. What about credit card points, hotel points, and travel miles? If balances are significant enough to be worth the hassle, you can check with banks, airlines, and hotels to see if there is a way to transfer the credits.
One tip: You may need to contact the funeral home or your state agency for vital records to obtain additional copies of the death certificate for probate proceedings and transfer of assets as well as for scenarios we will address in other posts in this blog series.
If you’re interested in talking through any of this—whether you’re an existing client or you’re curious about working with us—please don’t hesitate to contact us. For a free downloadable checklist of issues to consider when a spouse passes away, including other topics in this blog series, click here and enter your contact information.