Financial Tips After a Death in The Family

Important financial topics to discuss after the loss of a loved one.

The death of someone close to you, a spouse or a parent, can easily be one of the hardest times of your life. Unfortunately, this situation is often compounded by pressure to make financial decisions immediately, but in reality, you should give yourself sometime. Making emotional or rash decisions now maybe hard to undo in the future.

Major decisions to avoid in the short term after a death:

  • Don't sell off stock
  • Don’t sell the house
  • Don’t close out joint checking accounts
  • Don’t give away money
  • Don’t be talked into items such as additional life insurance

Down the road, some of these decisions might make sense, but in the days and months following such a loss, it is best to take a financial break. Unfortunately, there are “ambulance chasers” out there, and you don’t want to be taken advantage of when you are at your most vulnerable.

Your short-term to-do list

Somethings just can’t be put off, so here’s a list to get you started:

  • Do gather all financial documents
  • Do note passwords to access computer files
  • Do organize by making separate folders for credit cards, insurance policies, taxes, bank statements and everyday monthly bills
  • Do keep important information on hand such as the deceased’s date of birth, full legal name, marriage certificate and Social Security number
  • Do gather military papers or employer benefits
  • Do obtain a death certificate and make at least a dozen copies (the funeral director should be able to assist you with this task) because you will need to distribute copies to banks, credit reporting agencies, mortgage lenders, life insurance companies, etc., to close out, change ownership or file claims on those accounts

Your financial life goes on

Even through this difficult time, you must continue to pay your monthly bills and utilities, insurance, mortgage payments, etc. Failure to do so could result in late fees and unnecessary interest payments. However, you should notify agencies such as your health insurance company to stop payments for your partner’s premium. Also, take the time to discontinue any of the departed’s fitness center or club memberships that require a monthly payment.

Ask for help

Surrounding yourself with trusted, sound financial advice during the first six months is key. If possible, put together a group you can rely on including a lawyer, an accountant and a financial planner along with a trusted friend or two, preferably ones with financial expertise. While avoiding major decisions is still important to remember, this trusted support group should go a long way in keeping you focused.

Evaluate your revised cash flow

Simply write down all sources of income (wages, bank dividends, pension or IRA distributions and Social Security), then write down your known expenses (mortgage payments, monthly utilities, groceries, insurance, car payments, etc.). Don’t forget discretionary items like that trip you wanted to take. Next, compare the two lists to understand where you stand financially on a monthly basis. If you see a shortfall, it may be time to remove some of the discretionary spending, like travel.

Don’t forget life insurance policies

If your loved one carried an insurance policy, filing a claim can be of immediate benefit to your finances. You will probably have some choices to make on how you receive the funds. Some insurance companies offer to place the insurance funds in their own account, allowing you limited monthly access, but since you can take the funds and place them in a federally insured financial institution, this option is typically less desirable. The insurance company may also offer you guaranteed monthly payments for life, a full payout or other options. Your support team, financial advisor and accountant can help you make a sound decision on what best suits your future plans.

Know the basics of estate law

  • You typically have about nine months from the date of death to file an estate tax return. A federal estate tax return can be filed using Form 706. As of 2018, a filing is required in Colorado for estates with combined gross assets and prior taxable gifts exceeding $11.2 million. To learn more about Colorado’s estate tax requirements, visit Colorado.gov
  • It is also important to keep receipts for activity related to the estate. Funds required to hold the wake and the cost of the funeral itself, are legitimate tax deductions.
  • If your spouse served as your health or financial Power of Attorney, you will need to make changes to those documents to designate a new representative and keep yourself in good standing.

Check with your loved one’s employer

From unpaid salary or bonuses, to paid time off or stock options, if the deceased was employed, certain benefits might be due to you beyond insurance. If retired, then pension benefits may be available.

The ABCs of 401(k)s

Contact your lawyer or accountant for advice about handling 401(k) distributions. There are many aspects of which to be aware, including the IRS’s mandatory deposit of disbursements into an IRA or other tax deferred vehicle within 6 months to avoid paying taxes on the entire amount.

Continuing health coverage

If your health coverage was through the deceased’s employer, and if the employer had at least 20 full time employees, you might be able to continue your health coverage for up to three years through COBRA. A quick call to the plan administrator will tell you if this is possible.

Review your Social Security benefits

If you’ve lost your spouse and are at full retirement age, you are eligible to benefits equal to 100% of the deceased spouse’s benefit. Visit ssa.gov to learn more.

The stress of losing a loved one can be overwhelming. Following these tips can help reduce the additional burdens associated with finances.

Learn more about estate and legacy planning, probate and more from Wills and Wellness