Widow’s Checklist Part 2: Finances for the Rest of Your Life
Months after a spouse’s passing, it’s time to organize your future
In Part 1 of this article, I explained the decisions that need to be made immediately following the death of a spouse. I also pointed out that many decisions could, and ought to, wait while the newly widowed person adjusts to life without a spouse.
(Note: Women historically outlive their husbands, but this advice applies to widowers, too.)
Hopefully, months after the loss of your spouse, you’re feeling physically and mentally strong and ready to take on decisions that will shape your financial future. Here’s advice on how to do that:
Close down credit card accounts that weren’t joint. Contact the issuer, confirm if there are any recurring automatic payments you need to redirect, pay off the remaining balance, and then close the account. No need to leave it exposed to identity theft, a hassle you really don’t want.
Update joint accounts to your name only. Each financial institution and business has its rules. Some will be a snap; others require paperwork and death certificates.
Get good advice. If you’ve been hands-off of finances, you need to step up so you can make informed, confident choices. But that can be with the help of a financial planner. Will friends and family be full of advice? Sure. But that doesn’t make it good advice, or the best advice for your situation. If you want to ask around for references, seek leads from people whose situation is similar. The key is to find an advisor who works as a fiduciary. That means they will only offer advice that is in your best interest. Any advisor who is a fiduciary will be happy to put that in writing. The National Association of Personal Financial Advisors has a free online tool to locate fiduciary planners. You can also search for fiduciary planners at the websites of the Garrett Planning Network and the XY Planning Network.
If you have an advisor, but your spouse was the point person, make an appointment when you are ready. This can be a rocky relationship. A survey a few years ago found the majority of women fire the advisor their spouse worked closely with. Women often don’t connect with their existing advisor — who are oftentimes men — and may feel that the advisor isn’t listening or that they assume everything will stay as the husband agreed. Before you up and leave, it might be worth having one clear conversation spelling out that you are the client now. Share your goals and priorities and concerns. An advisor shouldn’t need that prod, but if you can get on the same page, you may find it comforting to work with someone your spouse valued.
Make yourself the priority. Not the kids or grandkids. You may look at the insurance payout and the value of retirement accounts, and feel it’s more than you will ever need, and want to share. Slow down. Longevity stats tell us a 65-year-old woman in average health has a very good chance of still being alive at 90. A financial planner can help make sure your money lasts at least as long as you.
Learn before taking anyone’s advice. There are plenty of unscrupulous folks eager to sell you an expensive insurance policy you don’t need, or overly complicate your investments just to earn themselves commissions. There is no substitute for taking time to learn enough to make informed decisions. Anyone who insists you “buy now,” or you “shouldn’t wait to cash in on this great opportunity,” is to be avoided.
Understand the two-year tax break. Married couples who sell a home at a profit have no tax bill on the first $500,000 in profits, called capital gains. Individuals who sell a home at a profit owe no tax if their capital gain is below $250,000. Once you are widowed, you can still qualify for the $500,000 exclusion if you sell within two years of the death of a spouse. Moreover, if you jointly owned the home, your deceased spouse’s share is eligible for “step up basis” that reflects 50% of the value on the date of death.
An example: Thirty years ago, you bought the home for $100,000. So, as joint owners you each have a cost basis of $50,000. When your spouse dies, the home’s value is $800,000. That means your spouse’s share of the home for tax purposes is now “stepped up” to $400,000. Your 50% remains at $50,000. So your base cost is $450,000, not the $100,000 you paid and your “profit” $350,000. That’s below the $500,000 exclusion. (Improvements to the house over the years also reduce the tax.)
Update essential estate docs. A will only kicks in once you are dead. A time may come when you are no longer interested or capable of handling financial matters. Appoint someone your durable power of attorney for finances, as well as someone your durable power of attorney for healthcare. Was your spouse your “agent” to represent your wishes to doctors and caregivers if you aren’t able to be your own advocate? That needs updating, too. You also want to consider who will be the beneficiary(aries) of your retirement and other investment accounts.
If you don’t yet have a living revocable trust, having one can be a seamless way to pass your assets to your beneficiaries. With only a will, your heirs will likely need to go through probate. A trust can help them skip probate. Trusts aren’t just for the 1%. They have less to do with how much money, and everything to do with streamlining how assets will be disbursed.
Head spinning? An accountant and estate-planning lawyer can help. This work may initially feel burdensome. But peace of mind comes from taking control. Never apologize for what you need to learn. In a Merrill Lynch Age Wave survey, 72% of widows who assumed responsibility for finances grew to consider themselves more financially savvy than other people their age. That’s got to feel good.