The first few months after losing a spouse can be very challenging. After you have tackled the immediate financial issues, you should be ready to start working on long-term financial planning items. This may involve updating your estate plan, mapping out a plan with a financial advisor to ensure that all documents and assets are in order and on the right track towards your own financial goals, and reviewing your investment portfolio, even if you were involved with your family’s financial planning prior to your spouse’s passing. Here are a few financial planning items that may take a bit more time to address, but are important to get you on the right track and get you moving forward.
If you haven’t already, enlist the appropriate professionals to help. Make a list of any current professionals you work with such as your CFP® professional, estate planning attorney, tax advisor, and insurance agents. This is a good time to make sure the existing professionals are a good fit for you under your new circumstances. There are a lot of moving parts so consider allowing these professionals to collaborate on your behalf, if they are open to it. It may save you time, energy, and create more comprehensive and thoughtful solutions.
For most, there are five main areas of insurance: property and casualty (such as home, auto, and umbrella), health, disability, life, and long-term care. Schedule a meeting with your Insurance Agents to set-up an in-depth review of all of your insurance policies. Be sure to update any policies in place and cancel any policies no longer needed. For example, if your net worth has increased due to an inheritance, you should consider increasing your umbrella policy coverage. Reflect any changes in ownership where appropriate. If your health insurance was through your spouse’s employer, you may be able to extend your coverage through COBRA while you make arrangements to obtain your own permanent coverage.
It’s important to spend time focusing on your future and developing a financial plan that is appropriate for you moving forward. Work with your CFP® professional to analyze your situation to evaluate if you have enough in assets to maintain your current lifestyle, or if additional saving (or a cutback in spending) is needed. It may take a few months to get a good understanding how your expected expenses will change moving forward. There are a number of resources that can help you understand your spending such as Quicken®, your bank or credit card may have resources, and free online websites such as Mint.com.
An important part of your financial planning process is to review all sources of income your spouse was receiving, or that you are entitled to as his widow. Have any remaining salary, paid time-off, and employee benefits been paid out? Did your spouse have any pensions they were receiving or would receive in the future? Was your spouse a veteran collecting VA benefits? Notify the social security office of your spouse’s passing and inquire if you qualify for survivor benefits.
Your investment portfolio should tie into your newly revised overall financial plan and be positioned to help you achieve your goals. Schedule a time to sit down with your CFP® professional to review your investment allocations. Your risk tolerance, goals, and objectives may not be the same as your spouse’s, and the current investment objective and allocation may not be appropriate for you moving forward. If your spouse handled the family’s portfolio management and it’s not comfortable to you, ask your CFP® professional to take extra time when explaining concepts so you can determine what is suitable for you. Be sure to take into account any tax implications when making changes to non-qualified accounts, or taking disbursements from retirement accounts.
There is a lot of work (and paperwork) involved to settle an estate -- transferring assets, re-titling accounts, filing insurance claims, completing final tax returns, etc. It can take months or years to finalize, depending on the size of the estate. This is where your team of professionals will be very important. If you had an estate plan in place before your spouse passed away, such as wills and a trust, assets will flow via your estate plan. Make sure trusts are funded properly, if appropriate. Assets may need to be re-titled accordingly. Beneficiary designations need to be reviewed and updated, if necessary. A Federal estate tax return (IRS Form 706) may also need to be filed; check with your estate planner or tax advisor. This is also where it is helpful to allow your professionals to collaborate, since it’s a coordinated “dance” to get everything done.
Take some time to understand any liabilities that may still exist from your spouse. Did they support anyone financially through spousal support (“alimony”) or child support? Any outstanding debt obligations that need to be paid such as a credit card or a pending note? Work with your CFP® professional, tax advisor, and estate planning attorney to find out what obligations end at death and what your spouse’s estate may be liable to cover.
As part of your insurance review, be careful that you don’t keep insuring (and paying) for what is no longer needed. Did your spouse own a piece of jewelry that was scheduled on your Homeowner’s policy and has since been gifted? Did you sell your spouse’s car but it’s still listed on your auto policy? Do you have life insurance on your life that would pay to your spouse in the event of your death, but is no longer needed? Be sure you have also remove your spouse’s name from any policies so you aren’t paying extra premium.
The general rule is the basis (“cost”) of property a person inherits from another is the fair market value at the date of death. As an example, if your spouse owned stock they purchased at $5/share and the fair market value as of the date of death is $10/share, the basis can be “stepped-up” to $10/share. Therefore, if you sell the stock for $15/share you have a $5/share gain (vs. $10/share gain). If the fair market value of the stock is $1/share then the basis would step-down to $1/share. A change in basis may depend on titling and current estate law, so be sure to work with your estate planning attorney, CFP® professional, and tax advisor to review your spouse’s assets and adjust basis where appropriate.
It’s important to work with your estate planning attorney on not only settling your spouse’s estate, but updating yours. Most people list their spouse as the person to step in as successor trustee, executor, power of attorney, and agent for health care matters. It’s important to review all successors you have listed for these positions and update where necessary. Also, check your beneficiary designations on retirement plans, life insurance, and annuities to update if your spouse is currently listed.
While it can feel a bit overwhelming to not only settle your spouse’s estate but to start planning for your future, hopefully these do’s/don’ts will help give you some direction. Envision what you want your life to look like moving forward and put a plan in place to make it happen. Take it slow, enlist help from professionals, tackle one item at a time, and before you know it you will have a solid plan to take care of you for years to come.
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Laura Knolle is a CERTIFIED FINANCIAL PLANNER™ with Ballou Plum Wealth Advisors, LLC, a Registered Investment Advisory (RIA) firm in Lafayette. Laura is also a Registered Representative with LPL Financial (LPL). The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Financial Planning offered through Ballou Plum Wealth Advisors, A Registered Investment Advisor and a separate entity. Securities offered through LPL Financial, member FINRA/SIPC.
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