What Do You Need to Do When a Spouse Dies?

Life events require planning, even the most heartbreaking, like the death of a spouse. Spouses ideally create a blueprint together so when the inevitable occurs, they are prepared, says the article “The important financial steps to take after a spouse dies” from The Globe and Mail. It may sound cold to take a business approach, but by doing so, the surviving spouse will know what to expect and what to do.

Some people use a spreadsheet to clearly see what their financial picture will look like before and after the death of a spouse.

There are pieces of information that are vital to know:

  • What health insurance coverage does the spouse have?
  • Will the coverage remain in place after the death of the spouse?
  • Do any accounts need to be changed to joint ownership before death?
  • What investments do both spouses have, and will they be accessible after death of one spouse?
  • Is there a last will and testament, and where is it located?

Many people are wholly unprepared and have to tackle their entire financial situation immediately after their spouse dies. If they were not involved in family finances and retirement planning, it can lead to costly mistakes and make a difficult time even harder.

If assets are owned jointly with rights of survivorship, the transition and access to finances is easier. If the accounts are only in one name, the surviving spouse will have to wait until the estate goes through probate before they can access funds. If there are bills to pay, the surviving spouse may have to tap retirement funds, which can come with penalties, depending on the accounts and the surviving spouse’s age.

All of this can be avoided by taking the time to create an estate plan which includes planning for asset distribution and may include trusts. There are many trusts designed for use by spouses to take assets out of the probate estate, provide an income source and minimize taxes. Your estate planning attorney will be able to help prepare for this event, from a legal and practical standpoint.

What happens when there’s no will?

No will usually indicates no planning. This leaves spouses and family members in the worst possible situation. The laws of your state will be used to determine how assets are distributed. How much a surviving spouse and descendants will inherit will be based solely on the law. The results may not be optimal for anyone. It’s best to meet with an estate planning attorney and create a will.

Reviewing beneficiary designations for life insurance policies and retirement accounts should be done every few years. If the beneficiary is no longer part of the account owner’s life, the designation needs to be updated. If the beneficiary had died, most accounts would go into the probate estate, where they otherwise would pass directly to the beneficiary.

Reference: The Globe and Mail (July 13, 2022) “The important financial steps to take after a spouse dies”

Who Is the Best Person for Executor?

Several critical estate planning documents give another person—known as an agent or personal representative—the legal right to act on another person’s behalf. They include wills, trusts, powers of attorney and advance health care directives, as described in a recent article titled “The nomination of trustees, executors and agents” from Lake County Record-Bee.

Your will is only activated after you die. The will and executor then have to be approved by the court. Many people think being named as an executor confers instant authority, but this is not true. Only when the will has been deemed valid by the court, does the executor have the power to act on behalf of the decedent.

After death, the court is petitioned for a court order appointing the executor and then letters testamentary are signed by the appointed executor. An executor then becomes active as an officer of the court with a fiduciary duty to act as personal representative of the decedent’s estate.

If the named person declines to serve, the will should have a secondary person named as executor, who can then request the appointment be validated by the court. Others can petition the court to be appointed. However, it is best to name two people of your choice in your will.

A trust is a separate legal entity with a trustee who is in charge of the trust and its assets. If a revocable will is created, the trustee is usually the same person who has the trust created, also known as the grantor. For an irrevocable trust, the trustee is someone other than the grantor. The appointment does not become official until the appointment is accepted, usually through signing a document or by the successor trustee taking action on behalf of the trust.

Just as an executor might not accept their role, a trustee can decide not to accept the nomination. However, once they do, they have a fiduciary duty to put the well-being of the trust first and manage it properly. You can’t accept the role and then walk away without serious consequences.

Powers of attorney are used while a person is living. The power of attorney’s effective date depends upon what kind of POA it is. A durable power of attorney is effective the moment it is signed. A springing POA sets forth terms upon which the POA becomes active, usually incapacity. The challenge with a Springing POA is that approval by the court may be required, usually with proof from a treating physician concerning the person’s condition.

Similarly, the health care power of attorney appoints a person who acts on behalf of another as their agent for health issues. They can decline the position. However, once they agree to take on the position, they are responsible for their actions.

If the POAs decline to serve and there is no secondary person named, or if all named POAs decline to serve, the family will need to apply for a conservatorship (also known as guardianship). This is a lengthy and expensive process requiring a thorough investigation of the situation and the person who needs representation. It can be contested if the person does not want to give up their independence, or by family members who feel it is not needed.

These are commonly used terms in estate planning. However, they are not always understood clearly. Your estate planning attorney will be able to address specific responsibilities and requirements, since every state has laws and appointments vary by state.

Reference: Lake Country Record-Bee (July 30, 2022) “The nomination of trustees, executors and agents”

What are Alternatives to Guardianship?

Guardianships are drastic and very invasive. They strip individuals of their legal autonomy and establish the guardian as the sole decision maker. To become a guardian requires strong evidence of legal incapacity, and approval by a judge, explains an article titled “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First” from Kiplinger. They should not be undertaken unless there is a serious need to do so. Once they’re in place, guardianships are difficult to undo.

If an elderly person with dementia failed to make provisions durable powers of attorney for health care and for financial matters before becoming ill, a guardianship may be the only ways to protect the person and their estate. There are also instances where an aging parent is unable to care for themselves properly but refuses any help from family members.

Another scenario is an aging grandparent who plans to leave funds for minor beneficiaries. Their parents will need to seek guardianships, so they can manage the money until their children reach the age of majority.

Laws vary from state to state, so if you might need to address this situation, you’ll need to speak with an estate planning attorney in the elderly parent or family member’s state of residence. For the most part, each state requires less restrictive alternatives to be attempted before guardianship proceedings are begun.

Alternatives to guardianship include limited guardianship, focused on specific aspect of the person’s life. This can be established to manage the person’s finances only, or to manage only their medical and health care decisions. Limited guardianships need to be approved by a court and require evidence of incapacity.

Powers of attorney can be established for medical or financial decisions. This is far less burdensome to achieve and equally less restrictive. A Healthcare Power of Attorney will allow a family member to be involved with medical care, while the Durable General Power of Attorney is used to manage a person’s personal financial affairs.

Some families take the step of making a family member a joint owner on a bank, home, or an investment account. This sounds like a neat and simple solution, but assets are vulnerable if the co-owner has any creditor issues or risk exposure. A joint owner also doesn’t have the same fiduciary responsibility as a POA.

An assisted decision-making agreement creates a surrogate decision-maker who can see the incapacitated person’s financial transactions. The bank is notified of the arrangement and alerts the surrogate when it sees a potentially suspicious or unusual transaction. This doesn’t completely replace the primary account holder’s authority. However, it does create a limited means of preventing exploitation or fraud. The bank is put on notice and required to alert a second person before completing potentially fraudulent transactions.

Trusts can also be used to protect an incapacitated person. They can be used to manage assets, with a contingent trustee. For an elderly person, a co-trustee can step in if the grantor loses the capacity to make good decisions.

Planning in advance is the best solution for incapacity. Talk with an experienced estate planning attorney to protect loved ones from having to take draconian actions to protect your best interests.

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First”

What Is a TOD Beneficiary?

You can name anyone as a TOD beneficiary. However, if you’re married, your spouse may have special rights over your assets that take precedence over your named TOD beneficiaries. These laws vary by state, though, so ask an experienced estate planning attorney.

Investopedia’s recent article entitled “Who Can Be a Transfer on Death (TOD) Beneficiary?” explains that, if you name TOD beneficiaries, it’s very clear who you want to receive your assets when you pass away.

A TOD instruction allows your heirs to avoid probate for these assets. This will take precedence over anything in your will. This can make the legal process of distributing assets much faster than it otherwise would be.

It’s important to know that naming TOD beneficiaries may not achieve everything you would like to achieve in your inheritance settlement. Passing on assets to a TOD beneficiary won’t provide much creditor protection. In that case, a trust may be a better option.

Your TOD beneficiaries will also be responsible for paying taxes on the money they receive. This will complicate their tax situation and may also mean a large tax bill for them.

Remember that a transfer on death (TOD) beneficiary can be a person, charity, business, or trust. If the beneficiary is a person, they can be a relative, child, spouse, friend, or anyone else you happen to know. But again, if you’re married, your spouse may have special rights over your assets that take precedence over your named TOD beneficiaries, according to state law.

Contact your account provider to see if you can add a TOD beneficiary. It’s available for many account types—not only retirement accounts but also certificates of deposit (CDs), savings accounts and brokerage accounts.

Naming a TOD beneficiary (or several) can have advantages during the inheritance process, since this makes it very clear who you would like to inherit your assets. These funds can then be distributed without passing through the potentially costly process of probate. It can make the inheritance process much simpler because your named beneficiary will automatically receive the assets in the account—bypassing probate as a result.

Reference: Investopedia (May 19, 2022) “Who Can Be a Transfer on Death (TOD) Beneficiary?”

Should I have a Pour-Over Will?

A pour-over will is a type of will that’s created in conjunction with a trust. It can help facilitate the transfer of assets, if a trust’s grantor (the person establishing the trust) has failed to transfer all intended assets into the trust. A pour-over will can be an important part of a person’s estate planning checklist. Bankrate’s recent article entitled “Do you need a pour-over will in your estate plan?” gives us more information.

This type of will has a provision that directs the will to “pour-over” any residual assets left in the person’s estate into a living trust that is overseen by a trustee upon the grantor’s death.

A big benefit of this type of arrangement is that it’s a backstop, in case there were assets the grantor didn’t specifically fund into the trust before their death. This allows these assets to avoid the intestate rules (when someone passes away without a valid will), even though they were not specifically part of the living trust.

A person might designate certain assets to be titled in the name of a living trust they’ve established to facilitate passing these assets to the trust’s designated beneficiaries upon the grantor’s death. The trust avoids probate on these assets. However, any assets, such as an IRA or a life insurance policy, that passes on to heirs via a beneficiary designation wouldn’t be eligible for inclusion in this type of trust.

A pour-over will allows the grantor to state that any assets that had not previously been included in the trust should be added to the trust upon their death. Therefore, assets that may have been acquired after the trust was established are eligible for the same treatment as the assets that had already been funded to the trust.

It’s also simple and eliminates the need to decide which heir receives certain assets because everything eventually becomes part of the trust. These assets are, therefore, distributed via the terms of the trust.

It also helps avoid a lengthy probate case due to a significant asset that wasn’t included in the trust or elsewhere.

However, this type of will doesn’t eliminate the probate process. The will still needs to go through probate. There may also be possible legal challenges, which can be costly to litigate and take time to resolve.

Ask an estate planning attorney about a pour-over will as a part of your estate plan.

Reference: Bankrate (April 20, 2022) “Do you need a pour-over will in your estate plan?”

How Do I Plan for Taxes after Death?

Let’s get this out of the way: preparing for death doesn’t mean it will come sooner. Quite the opposite is true. Most people find preparing and completing their estate plan leads to a sense of relief. They know if and when any of life’s unexpected events occur, like incapacity or death, they have done what was necessary to prepare, for themselves and their loved ones.

It’s a worthwhile task, says the recent article titled “Preparing for the certainties in life: death and taxes” from Cleveland Jewish News and doesn’t need to be overwhelming. Some attorneys use questionnaires to gather information to be brought into the office for the first meeting, while others use secure online portals to gather information. Then, the estate planning attorney and you will have a friendly, candid discussion of your wishes and what decisions need to be made.

Several roles need to be filled. The executor carries out the instructions in the will. A guardian is in charge of minor children, in the event both parents die. A person named as your attorney in fact (or agent) in your Power of Attorney (POA) will be in charge of the business side of your life. A POA can be as broad or limited as you wish, from managing one bank account to pay household expenses to handling everything. A Health Care Proxy is used to appoint your health care agent to have access to your medical information and speak with your health care providers, if you are unable to.

Your estate plan can be designed to minimize probate. Probate is the process where the court reviews your will to ensure its validity, approves the person you appoint to be executor and allows the administration of your estate to go forward.

Depending on your jurisdiction, probate can be a long, costly and stressful process. In Ohio, the law requires probate to be open for at least six months after the date of death, even if your estate dots every “i” and crosses every “t.”

Part of the estate planning process is reviewing assets to see how and if they might be taken out of your probate estate. This may involve creating trusts, legal entities to own property and allow for easier distribution to heirs. Charitable donations might become part of your plan, using other types of trusts to make donations, while preserving assets or creating an income stream for loved ones.

Minimizing taxes should be a part of your estate plan. While the federal estate tax exemption right now is historically high $12.06 million per person, on January 1, 2025, it drops to $5.49 million adjusted for inflation. While 2025 may seem like a long way off, if your estate plan is being done now, you might not see it again for three or five years. Planning for this lowered number makes sense.

Reviewing an estate plan should take place every three to five years to keep up with changes in the law, including the lowered estate tax. Large events in your family also need to prompt a review—trigger events like marriage, death, birth, divorce and the sale of a business or a home.

Reference: Cleveland Jewish News (May 13, 2022) “Preparing for the certainties in life: death and taxes”

What Happens Financially when a Spouse Dies?

Losing a beloved spouse is one of the most stressful events in life, so it’s one we tend not to talk about. However, planning for life after the passing of a spouse needs to be done, as it is an eventuality. According to a recent article from AARP Magazine, “The Financial Penalty of Losing Your Spouse,” the best time to plan for this is before your spouse dies.

You’ll have the most options while your spouse is still living. Estate plans, wills, trusts, and beneficiary designations can still be updated, as long as your spouse has legal capacity. You can make sure you’ll still have access to savings, retirement, and investment accounts. Create a list of assets, including information needed to access digital accounts.

Make sure that your credit cards will be available. Many surviving spouses only learn after a death whether credit cards are in the spouse’s name or their own name.

Get help from professionals. Review your new status with your estate planning attorney, CPA and financial advisor. This includes which accounts need to be moved and which need to be renamed. Can you afford to maintain your home? An experienced professional who works regularly with widows or widowers can provide help, if you are open to asking.

A warning note: Be careful about new “friends.” Widows are key targets of scammers, and thieves are very good at scamming vulnerable people.

Be strategic about Social Security. If both partners were drawing benefits, the surviving spouse may elect the higher benefit going forward. If you haven’t claimed yet, you have options. You can take either a survivor’s benefit based on your spouse’s work history, or the retirement benefit based on your own work history. You will be able to switch to the higher benefit, if it ends up being higher, later on.

Be careful about your spouse’s 401(k) and IRA. If you’re in your 50s, you are allowed to roll your spouse’s 401(k) or IRA into your own account. However, don’t rush to move the 401(k). You can make a withdrawal from a late spouse’s 401(k) without penalty. However, it will be taxable as ordinary income. If you move the 401(k) to a rollover IRA, you’ll have to pay taxes plus a 10% penalty on any withdrawals taken from the IRA before you reach 59 ½. Your estate planning attorney can help with these accounts.

Use any advantages available to you. The IRS will still let you file jointly in the year of your spouse’s death. Tax rates are better for married filers than for singles. Any taxable withdrawals you’ll need to take from 401(k)s or IRAs may be taxed at a lower rate during this year. You may decide to use the money to create a rollover Roth IRA or to put some funds into a non-tax deferred account.

Don’t rush to do anything you don’t have to do. Selling your home, writing large checks to children, or moving are all things you should not do right now. Decisions made in the fog of grief are often regretted later on. Take your time to mourn, adjust to your admittedly unwanted new life and give yourself time for this major adjustment.

Reference: AARP Magazine (May 13, 2022) “The Financial Penalty of Losing Your Spouse”

What are the Most Important Estate Planning Documents?

Odds are that you know the benefits of having a last will and testament, and Forbes’ recent article entitled “Estate Documents You’ll Need Beyond A Last Will And Testament” says that, while this is a necessary aspect of your estate planning, it’s not the only documents you’ll want to have.

Let’s take a look at some of the other important estate planning documents.

A Living Trust. A living trust can limit the number of assets going through probate. Because a living trust is a revocable document, you can change it. A trust is designed to avoid or limit probate for the decedent’s assets, by creating a legally separate entity to hold property.

Living Will or Advance Directive. A living will or advance medical directive is often required by healthcare providers for certain medical procedures. However, this document should also be included within your estate plans. It tells your family and medical staff your wishes regarding lifesaving or life-prolonging medical procedures, in case you become unable to communicate with them.

Healthcare Power of Attorney. A power of attorney often consists of two documents. One is a healthcare power of attorney that lets you name someone to make healthcare decisions on your behalf. A power of attorney differs from the living will because your living will is only valid, if you’re unable to communicate your wishes.

Financial Power of Attorney. This document allows you to name a person to make financial decisions for you if you can’t and this doesn’t necessarily mean that you must be incapacitated. Many people use these when they are unavailable to sign documents.

Reference: Forbes (Feb. 18, 2022) “Estate Documents You’ll Need Beyond A Last Will And Testament”

Is Putting a Home in Trust a Good Estate Planning Move?

A typical estate at death will include a personal residence. It’s common for a large estate to also include a vacation home, or family retreat. Leaving real property in trust is common.

Estate plans that include a revocable trust will fund the trust by a pour-over, says Kiplinger’s recent article entitled “Should You Own Your Home in Your Trust?”

A settlor (the person establishing a trust) often will title their home to the revocable trust, which becomes irrevocable at death.

Another option is a Qualified Personal Residence Trust, which is irrevocable, to gift a valuable home to a trust for the settlor’s children. With a QPRT, the house is passed over a term of years while the original owner continues to live there, so the gift passes with little or no gift or estate tax.

Some trusts arising from a decedent estate will hold the home belonging to the settlor without any instructions for its disposal or retention. Outside of very large trusts, a requirement to actually purchase homes for beneficiaries in the trust is far less common.

It is more common in a large trust to have terms that let the trustee buy a home for a beneficiary outside the trust or keep the settlor’s home in the trust for a beneficiary’s use, including purchasing a replacement home when requested.

The trustee will hopefully propose a plan that will satisfy the beneficiary without undue risk to the trust estate or exceeding the trustee’s powers. The most relevant considerations for homeownership in a trust are:

  • The competing needs of other trust beneficiaries
  • The purchase price and costs of maintaining the home
  • The size of the trust as compared to those costs
  • Other sources of income and resources available to the beneficiary; and
  • The interests of the remaindermen (beneficiaries who will take from the trust when the current beneficiaries’ interests terminate).

The terms of the trust may require the trustee to ignore some of these considerations.

Each situation requires a number of decisions that could expose the trustee to a charge that it has acted imprudently.

Those who want to create a trust should work with an experienced estate planning attorney to avoid any issues.

Reference: Kiplinger (Feb. 8, 2022) “Should You Own Your Home in Your Trust?”

Can I Avoid Probate?

If you have life insurance, lifetime survivor benefits, a home or other investments, who gets them and when depends on what you have done or should do: have an estate plan. This is how you legally protect your family and friends to be sure that they receive what you want after you die, says the article “How (and why) to avoid probate: A slap at your family!” from Federal News Network.

A common goal is to simplify your estate plan to make administering it as easy as possible for your loved ones. This usually involves structuring an estate plan to avoid probate, which can be time-consuming and, depending on where you live, add a considerable cost to settle your estate.

There are a number of ways to accomplish this through an estate plan, including jointly owned property, beneficiary designations and the use of trusts.

Many individuals hold property in joint names, also known as “tenant by the entirety” with a spouse. When one spouse dies, the other becomes the owner without probate. It should be noted that this supersedes the terms of a will or a trust.

Another type of joint ownership is “tenancy in common,” However, property held as tenants in common does not avoid probate. The distribution of property titled this way is governed by the will. If there is no will, the state’s estate laws will govern who receives the property on death of one of the owners.

Beware: property owned jointly is subject to any litigation or creditor issues of a joint owner. It can be risky.

Beneficiary designations are a seamless way to transfer property. This can take the form of a POD (payable on death) or TOD (transfer on death) account. Pensions, insurance policies and certain types of retirement accounts provide owners with the opportunity to name a beneficiary. Upon the death of the owner, the assets pass directly to the beneficiary. The asset is not subject to probate and the designations supersede the terms of a will or trust.

Review beneficiary designations every time you review your estate plan. If you opened a 401(k) account at your first job and have not reviewed the beneficiary designation in many years, you may be unwittingly giving someone you have not seen for years a nice surprise upon your passing.

If you own assets other than joint property or assets without beneficiary designation, an estate planning attorney can structure your estate plan to include trusts. A trust is a legal entity owning any property transferred into it. A trust can avoid probate and provide a great deal of control by the grantor as to what they want to happen to the property.

Reference: Federal News Network (March 30, 2022) “How (and why) to avoid probate: A slap at your family!”