Helping a client after the death of a spouse is one of the most emotional parts of our work. It is a difficult time for everyone. Yet the decisions that follow can shape the finances of a surviving spouse for the rest of their life. Many tax and estate planning benefits exist between a married couple, and some of them change or end when one spouse dies. Knowing what to do, and what can wait, makes a hard time a little easier.
First Steps for Surviving Spouse Finances
In the first weeks, focus on the essentials. Order several certified copies of the death certificate, since banks, insurers and agencies will each ask for one. Notify Social Security, your spouse’s employer or pension plan, and any life insurance companies. Make sure you have enough cash on hand to pay bills while you retitle accounts. Also, try not to make large, permanent decisions until the shock has passed. That includes selling the house or giving money to family.
Social Security and Pensions
A surviving spouse can generally receive their own Social Security benefit or their late spouse’s benefit. You get the larger of the two, but not both. When and how you claim can change the amount, so it is worth reviewing before you apply. Pensions are similar. Whether a survivor benefit continues depends on the choice your spouse made at retirement. So gather the pension paperwork early.
Retirement Accounts and Taxes
A surviving spouse has more options with an inherited IRA or 401(k) than any other beneficiary. That includes treating the account as their own. The best choice depends on your age and whether you need the money now. Investments in a taxable account may also receive a new cost basis. That can reduce capital gains tax if you sell them.
For taxes, you can usually file a joint return for the year your spouse died. With a dependent child, you may be able to use the more favorable qualifying surviving spouse status for two more years. After that, filing as a single person often means a higher tax rate on similar income. That affects how you should plan withdrawals.
Protecting the Estate for the Next Generation
A simple will may not be enough after one spouse dies. The surviving spouse should update their own will, beneficiaries, powers of attorney and health care directives. For larger estates, the executor may want to file an estate tax return on time, even if no tax is due. Doing so may preserve the unused federal estate tax exemption of the late spouse. Without planning, heirs may face probate delays or higher taxes. And if someone needs long-term care, heirs may inherit very little. Our estate planning and distribution page explains how we help.
Help With Surviving Spouse Finances
We have helped many clients through this transition, from the first paperwork to a new plan built for one person. We coordinate with your attorney and accountant so we do not miss anything. If you or someone you love has recently lost a spouse, call our Wallingford office at 203-949-1710.
This article is for general information only and is not individualized investment, tax or legal advice.