Helping the Newly Widowed

Consolidating IRAs could be a mistake if the deceased spouse was much younger than the surviving spouse, says this advisor.

The email arrived early on a Saturday morning a few weeks ago. Without even opening it, I knew it was bad news. The sender was a woman I have known for almost 20 years. She and her husband had been clients since the early 2000s. Not long ago, her husband had entered hospice care.

I opened the email and learned that her husband had passed away earlier that morning. Even though I knew how ill her husband had been, the news still took my breath away. During my career, I’ve walked this path with over 20 clients, and it is always heartbreaking.

There is so much that the surviving spouse must deal with, and getting through those first few weeks and months can seem overwhelming. Fortunately, there are a lot of great support groups, books, and resources available. A book that I often give to surviving spouses is Kristin Meekhoff’s “A Widow’s Guide to Healing.”

The issue with books, helpful as they are, is that the surviving spouse often doesn’t have the time or sometimes even the energy to read them. Several of my clients have asked for something in a checklist form, and here is what we have assembled over the years to give to them:

Prior to Death, Your Clients Should Address These Topics:

  • Discuss postmortem wishes.
  • Have them gather all estate planning documents (will, health care proxy, power of attorney), but do not write on them — ask them to use sticky notes to highlight topics or items that they have questions about.
  • Check that beneficiary designations reflect their wishes.
  • Understand their current cash flow situation — do you have an adequate cash reserve?
  • Have them make an inventory of the accounts they have and how they are titled. Also note the current balances.
  • Have a meeting with your client and include a CPA and estate planning attorney.

Some clients don’t have the luxury of being able to have these discussions and take these actions, but if it can be done that is best. I’ve had a number of these meetings during my career, and you would think they would be very sad and difficult to get through. While they are often sad, it has been my experience that the spouse with the health issue has a tremendous sense of relief after this meeting. There are some items that need to be addressed, and it brings great peace for them to know that their survivors will be well prepared, at least legally and financially.

Immediately After Death, Your Clients Should:

  • Contact a funeral home to plan services.
  • Inform immediate family members and friends.
  • Write the obituary.
  • If the deceased was a veteran or a public servant (police, firefighter), they should contact the appropriate agency/administration, as ceremonial items may be available for the service.
  • Arrange for the care of animals.
  • Arrange to have someone be at the home during services.
  • Obtain 15 to 20 copies of the death certificate.
  • Inform you (their financial planner), the CPA, and the estate planning attorney of the client’s death.
  • Keep a record of the people who sent flowers, donations, or cards.
  • Save all receipts related to the burial, as some expenses may be reimbursed by the estate. Also, if the death is COVID-related, FEMA has a generous reimbursement program.

All these actions are important, but I must emphasize the need to have someone be at the home whenever there is a service that was announced online or in the newspapers. It’s a sad fact of life that criminals often target homes when they know people will be away. 

Within a Few Weeks, Your Clients Should:

  • Contact their insurance agent regarding any life insurance and request any claim forms.
  • If applicable, contact the decedent’s employer and inquire about any benefits.
  • Ensure that their health insurance will continue.
  • Contact the Social Security Administration to inquire about any benefits they may be eligible for.
  • Meet with the attorney to discuss probate and/or the estate settlement process.
  • Verify that they have credit cards issued in their name, because any cards for which they are only an authorized user will likely be canceled.
  • Meet with an accountant about filing a final tax return.
  • Meet with you, their financial planner, to discuss their preparedness for retirement and which assets may need to be retitled.
  • Contact the financial institutions where the decedent had accounts and ask for a date of death valuation.

After a Month, Your Clients Should:

  • Update their own estate documents.
  • Update their beneficiary designations.
  • Begin to distribute the decedent’s personal effects.
  • Send thank-you notes.
  • Close social media and email accounts.

In my experience, the surviving spouse is mentally and physically able to engage in financial discussions about a month or so after their spouse’s death. Around that time, we have a meeting with them and, while tears are shed, the surviving spouse often tells me that they have a sense of relief after the meeting. Our responsibility after that meeting is to make a list of the specific actions that need to be taken, and then we update the family’s financial plan.

“In my experience, the surviving spouse is mentally and physically able to engage in financial discussions about a month or so after their spouse’s death.”

The First Big Decision Point

I find that one of the biggest decisions new widows and widowers make is what to do with their spouse’s IRA(s). Surviving spouses have the option to treat all or a portion of their deceased spouse’s IRA as their own, or they can set up an inherited IRA. Upon finding out they can roll their spouse’s IRAs into their own, many people are inclined to go that route, I think because it sounds simpler. However, that can be a mistake.

If the surviving spouse is young and may need to take withdrawals from the IRA, it is usually much better for them to take all or a portion of their deceased spouse’s IRA as an inherited IRA. With this arrangement, they can leave the IRA to grow, but they can also take distributions if they need to. By comparison, if they consolidate the two IRAs and later need to take a distribution before the age of 59½, they will incur a 10% early withdrawal penalty.

One strategy that I think is often overlooked involves a survivor inheriting from a younger spouse. For example, consider a survivor who is in their late 50s or early 60s. The 59½ issue isn’t a concern for them, so they may lean toward consolidating the two IRAs. Again, that could be a mistake if the deceased spouse was much younger. One client whom we worked with lost their spouse when they were 60. Clearly there would be no early withdrawal penalty to worry about. However, their spouse was in their late 40s. In this instance, keeping the spouse’s IRA as in inherited IRA means that the survivor does not have to take required minimum distributions (RMDs) from the IRA until the spouse would have turned 72 – that’s a lot of time to defer RMDs.

 Taking Their Time

There is obviously a lot that needs to be done once a spouse dies, but I think it is important that the surviving spouse try not to make any important life-changing decisions for at least one full year after death. There is simply too much going on. Moving to be closer to other family members may seem like the best thing to do when they are dealing with grief, but they may feel differently in six months or a year.

Documenting the Process

One other thing that I think is helpful for clients: Suggest that they buy a bound notebook and start taking notes of what they have done each day or every few days. If they called the insurance agent one day, be sure to have them note when they called, whom they spoke to and what forms they would be sent. If they canceled a credit card company another day, they should note that as well. And if they submitted paperwork to change a joint account to an individual account, they should note that. As they progress through the grieving process, they may occasionally find themselves in a bit of a fog, and it helps to have a record of what they have done and when.

Cheryl A. Costa, MBA, CFP, is the founding principal of Woodside Wealth Management LLC in Framingham, Mass. She specializes in helping retirees and near-retirees. Cheryl, a graduate of Worcester Polytechnic Institute, also enjoys working with clients in the tech and pharmaceutical industries, and she has a niche working with women in those industries. She has served as a CFP Board Ambassador since 2015.

 

 

 

 

 

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