Sudden impact: When a spouse unexpectedly dies | Insight on Estate Planning, 1st Quarter, 2018

Do you know someone who suddenly became widowed when a beloved spouse unexpectedly passed away in the prime of life? You may have tried to console the widow or widower, but then resumed your normal daily activities. And the surviving spouse was left to pick up the pieces of his or her life, often, on their own.

But this isn’t always “someone else’s” problem. Don’t think that it can’t happen to you or a member of your immediate family. Would you be prepared to cope emotionally and financially? Could you afford to live the same lifestyle?

It’s almost impossible to fully prepare beforehand for such a calamity, but it helps to keep your finances organized and communicate with your spouse about these matters. In addition, know that your trusted estate planning advisor can help you navigate through the minefield. You aren’t alone, after all.

Key points to address

In the event a spouse passes away without warning, a surviving spouse will face several critical challenges, including some significant financial decisions. Of course, handling the funeral arrangements comes first.

The following are other key points that will need to be addressed:

Emotional responses: It’s easy to say, and hard to do, but don’t let your emotions rule your judgment. For instance, if you’re tempted to immediately move out of your home, sell your spouse’s business or invest a lump-sum life insurance payout, hold off. Take the time to sort out what will likely be best for you and your family in the long run.

Death certificates: One of the first things to do is visit the county clerk’s offices to officially record the death. At this time, you can obtain death certificates which will be needed for dealings with financial institutions and others. The numbers will vary person-to-person, but you’ll probably need at least a dozen.

Notifications: Along with the county offices, you must get the word out to other interested parties, including your spouse’s employer; credit card companies; life insurance companies, retirement plan and IRA administrators; the Social Security Administration (SSA); the state motor vehicle agency; the state office for inheritance tax (when applicable); and your attorney and other professionals.

Social Security benefits: Obviously, if your spouse was receiving benefits, you should consult with the SSA as to the benefits available to a surviving spouse. Frequently, modifications are required if the survivor was the lower-earning spouse. Even if your spouse wasn’t receiving benefits yet, you may be eligible for survivors’ benefits, depending on your age and other factors.

Insurance: Don’t assume that everything about your insurance plans will stay the same. Review your various insurance policies — such as life, health, disability income, auto and long-term care — to ensure that you’ll have the optimal coverage going forward. Make whatever beneficiary changes are required.

Retirement plans and IRAs: Besides beneficiary designations comparable to insurance, you may face important decisions regarding employer retirement plans, like a 401(k) plan, and traditional and Roth IRAs. For example, if your spouse had a traditional IRA, you can complete a timely rollover to an IRA of your own without owing any tax. Conversely, you might opt for a lump-sum payout from a 401(k) or IRA should you need their funds.

Investments: Similarly, examine the investments that were owned solely by your spouse, as well as those you owned jointly. When you have time, sit down with your financial advisor to chart out a path for the future, focusing on changes in personal objectives, time horizon and risk assessments. Again, don’t rush into any hasty decisions.

Other practical considerations

Is that the entire to-do list? Not by a long shot. For instance, other actions may be required if your spouse was the grantor or beneficiary of a trust or was a military veteran. Veterans are entitled special burial reimbursements. Also, you may have to address assets your spouse owned jointly with someone else, such as a sibling.

Once you’re over the initial shock of the death, your overall focus should shift to organization and analysis. Account for all of your assets and figure out a long-term plan for paying regular monthly expenses and other obligations, such as college education for children. Finally, don’t forget to factor in your needs in retirement.

SIDEBAR: What about tax filings?

Although federal estate tax returns are required only for the wealthiest individuals, you may choose to file a return to establish the value of inherited assets. Generally, the return is due within nine months of the date of the death. For example, if a spouse passed away on November 1, 2017, the return must be filed by July 1, 2018.

Also, you may face responsibilities for state estate taxes. Finally, you must file an income tax return on behalf of your spouse.