Financial Planning in the First Year of Widowhood

What You Need to Know

While it’s important not to rush into discussions about finances after a spouse’s death, some tasks, like filing the final joint tax return, can be time-sensitive.
Review the late spouse’s estate planning documents to ensure that no assets are overlooked.
Help your client deal with any inherited IRAs and to retitle assets into their own name.

You and your clients know the importance of estate planning. But your married clients may not be prepared for the financial planning tasks that await the survivor after the death of a spouse.

Grief can be complicated and sometimes unpredictable, and it is important not to rush into discussions about finances after a spouse’s death. But working compassionately with your client through these issues can give them peace of mind and help solidify your relationship.

Here is a look at some key planning priorities for the first year of widowhood that many of your clients will face. Priorities will vary widely from client to client based on their situation, including their age and whether the deceased spouse was working.

One thing the widowed client will need at the outset is several copies of the death certificate in order to access or retitle certain accounts and assets.

Review Their Financial Situation

As soon as possible, sit down with the widowed spouse to review their overall financial situation. Are they retired? Do they work? Are they comfortable managing their own finances or did their deceased spouse handle most of this? You will need to tailor your initial and ongoing advice to your newly widowed client accordingly.

Some areas to cover include:

Sources of income
Inherited assets and accounts from their spouse
Any inherited debts or liabilities
Their anticipated lifestyle moving forward
Their own estate planning as a newly widowed spouse

Review Estate Planning Documents

Be sure to review all of the late spouse’s estate planning documents such as wills and trusts to determine which marital assets pass to the surviving spouse and which, if any, go to others. This also applies to beneficiary designations on retirement accounts, life insurance policies, annuities and other assets. In the case of a first marriage this may not be an issue, but things can get complicated if this was a second marriage and if there were children from a prior marriage.

Final Tax Return

The year of a spouse’s death is the last year the survivor can file a joint tax return with their late spouse. Filing a joint return can offer a number of tax advantages, so it’s important to look at ways to take advantage of this status, such as accelerating any income into the year of death.

Review Life Insurance Policies

Work with your client to ensure that they are aware of all life insurance policies their late spouse may have had in force. Be sure that those for whom your surviving client was the beneficiary are properly submitted to collect the death benefits.

If there are policies with beneficiaries other than the surviving spouse, work with your client to ensure those beneficiaries are aware of policy and how to collect their benefit.

Employer Benefits

If the deceased spouse was working, be sure your client contacts their late spouse’s employer regarding any survivor’s benefits they may be entitled to. This could include life insurance, the balance in the late spouse’s 401(k) or similar retirement plan, or any bonus payments they may have earned or stock compensation such as company shares, restricted stock units or other related types of stock compensation.

If the employer offers a pension, work with your client and the employer to determine what benefits they may be entitled to and their options for receiving those benefits.

Social Security Survivors Benefits

Depending upon the age of the widowed spouse, it may make sense to look at the Social Security benefits available as a surviving spouse relative to their own benefits. In some cases it can make sense to claim their own benefit and then switch to the survivor’s benefit, or vice versa.

If the surviving spouse is between ages 50 and 59 or is caring for a minor child, there are other options that might apply.

Your client will need your expert advice in making these choices.