The loss of a loved one, especially a spouse, triggers many emotions. Reactions can be a serious hindrance to the survivor's ability to make intelligent, thoughtful financial decisions. The following are ways family members or financial advisors can help.
A key first step is to collect important documents including a will. It is strongly suggested that a copy of a will be kept outside of a safety deposit box because once an owner dies, the bank locks the safety deposit box. If there are no other authorized users, the bank will not open the box without a court order.
In addition to a will there might be other trust documents if the decedent was trustee or a beneficiary of a trust. Proper planning requires that these documents be available as soon as practical.
Also collect day-to-day financial documents such as savings and checking account statements, credit card bills, utility bills and loan payment books for mortgages and car loans.
In many cases the surviving spouse lacks knowledge of the family’s finances. A good place to start learning the household finances is to analyze the sources and amounts of recurring income, as well as any one-time income from the estate. You should also look for income that will cease upon the death of the spouse. The tax return is usually the best place to start this search.
If there is pension income, a death often affects the pension payments. Therefore, investigate the policies and plans and review what options may be available for the surviving spouse.
If the deceased was a partner or owner in a business, contact the entity to see what payments are due upon death.
The Social Security Administration should be contacted if the spouse is over 50. The survivor might be eligible for benefits.
Once you have determined the sources and timing of income, it’s time to look at expenditures. The checkbook and bank statements are the best place to start. Some expenses may get reduced, like a second car, but often it is disappointing how little monthly expenses actually decrease for the surviving spouse.
From a financial planning perspective, the difficult work begins when there is a monthly cash deficit. You may be able to affect a small life change to take care of this or life insurance could be used to retire some outstanding debt, or you may choose to make income-producing investments to bridge the small gap.
In more serious cases, a decision has to be made about the affordability of the home. A useful analysis for addressing cash flow is to divide the expenses into two categories; those that are needed to maintain a lifestyle, and those that are discretionary, such as rent, utilities and food.
When retaining the home is a major factor in finances you can consider taking out a new, longer term mortgage, selling the house and downsizing, a reverse mortgage, and moving in with relatives.
This is also an important time to review a plan for elder long-term care. Is there a plan? Long-term care insurance? Often the retirement and investment assets are only enough to afford a current lifestyle and do not even come close to the cost of elder care. Consider hiring a Medicare attorney to review medical needs.
The last step is to make sure the survivor updates their own financial documents. In many cases, most of their documents were either joint with their deceased spouse or listed the deceased spouse as a beneficiary. Documents to update include:
A will
A health care power of attorney
A general power of attorney
Bank and brokerage accounts
Insurance policies
Credit card accounts
Deeds
Retirement plan accounts
Good records help survivors get through the tough times immediately following the death of a spouse. The best time to understand the documents is before a death occurs.
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