Ep. 216 – What To Consider If Your Spouse Has Passed Away After Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the different retirement things to consider if your spouse passes away. They explain how to approach cash flow, estate settlement, insurance, tax, and investment and assets issues.

Listen in to learn the importance of knowing how much you’re spending, where that money comes from, and what changes will happen after a spouse’s death. You will also learn the importance of getting an attorney to help you through the probate process if your deceased spouse didn’t have a will executor.

In this episode, find out:

  • Cashflow – Consider where the money is coming from and whether any changes will occur.
  • The importance of knowing how much you’re spending, where that money is coming from, and what changes will happen after a spouse’s death.
  • Estate settlement issues – The question to ask yourself and the correct process to go through with an attorney.
  • Insurance issues – Check their life insurance, work-related benefits, and other types of insurance.
  • Tax issues – Things to consider with the home, joint properties, income taxes, and dependent children.
  • Investment and assets issues – Consider their money accounts, transferability, and other assets.
  • Other things to consider – Driver’s license, email accounts, and social media accounts to avoid identity theft.

Tweetable Quotes:

  • “Knowing how much you’re spending, where that money is coming from, and what changes are going to happen due to the death of a spouse is going to help you start thinking through all the different issues.”– Murs Tariq
  • “You want to reach out to an attorney to help out with a probate issue, especially if there’s a lot of assets that will go through probate.”– Radon Stancil


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:Welcome everyone to Secure Your Retirement. We are very happy that you are able to join our podcast today. We do have a topic, though, that maybe doesn’t sound fun at first, but yet it’s something that’s necessary for us to talk about and it’s really kind of around this idea of losing a spouse, losing a parent, losing a loved one to death, and then having to say, “Well, how do I deal with that?” And I will tell you that in our practice when that is the case, many times a person’s mind is just not in the place of knowing that what are my next steps? How does it work? Because it’s just a lot of stress out there around this particular issue. And so we have created checklists that a person can get that we provide for our clients. And if you’re listening to this and you decide, “Hey, I’d like to get that checklist,” then all you have to do is give our office a call and you get all our information there on our website, pomwealth.net, and we’ll provide these checklists for you. We just think it’s extremely important that we look at this.
Ultimately what we’re going to do is we’re going to handle this really from the idea of a spouse and then we’ll say, hey look, here’s some things you might think about, just understanding that it’ll be a little bit different, if it’s a parent, something like that, then you’re going to look at it from a little different angle, but the issues are somewhat similar. So we’re going to work through these issues. I’ll tell you, we’re going to talk about cashflow, we’re going to talk about estate settlement issues, insurance issues, tax issues, investment and asset issues. All of these things are things just to, again, a checklist to say, how do I do it? What should I be thinking about? So we’re going to kind of go right into the first one here, which is cashflow and how that can be affected.
Murs Tariq:Yeah, so with cashflow, the important thing that we want to make sure we’re thinking through on cashflow is, well, where was the money coming from and are there going to be changes due to my spouse passing away and what things do I need to be thinking about there? So think through the different income sources that you had, whether it’s pension, Social Security, income from investments, income from rental properties, whatever it is, you want to get those together in your mind. And where we see cashflow issues and things that need to be done typically is you want to review Social Security. The rule is that you’re not going to continue to get both, but you will usually get the higher of the two. And there’s also survivor benefits around Social Security that you want to understand, but the general rule of thumb is that you’re going to get the higher of the two. So there will be a drop of income due to Social Security and you want to follow through with Social Security’s process on making sure all of that transitions smoothly.
Another common one is the spouse, this is the deceased spouse, where are they at, what is called, the required beginning date? For most people, we’re going to know that as required minimum distributions, right now above the age of 73, used to be 70 and a half, but now let’s go with 73 because that’s the current rule. Were they above that age and were they required to take a minimum distribution that year? If so, that is an obligation that you have to fulfill as if you are them, and you would have to take a mandatory withdrawal out of IRA assets, 401k, 403b, different types of pre-tax assets. So just keep that one in mind as well that if they were going to take an RMD that year, but they passed away, they’re still required to take one out and you have to implement that for them. That’s an important one to think through.
Was there a pension involved through work or through the state, government and was there any survivorship on that pension? When I say survivorship, a lot of times when we sign up for our pension, when we retire, we have options around what we can do and different options result in different amounts. So typically you can have the single life pension option or annuity option, but that’s just on that person’s life and if they were to pass there is no money that is going to continue on for the surviving spouse. But then oftentimes what we see is that there are survivorship options that are attached to the pension, and it could be while they’re living they get a bit of a reduced amount, but the benefit of that reduced amount is that it carries on for the next person’s life if something was to happen to them. So that’s what survivorship is called and it comes in different options. Sometimes it’s fully 100% survivorship, which means the income amount doesn’t change at all, or it can be 75, 50%, something like that or a period of time that it pays out. So you want to understand what options were elected with the pension so that you can understand what change of income you’re going to have, if any at all when it comes to that pension.
Those are just a few things, but then coming back to if there’s rental income, you want to understand where that’s coming from, if there’s a property manager involved, all those different things there. Any investment income that was being taken to cover cash flow, we’ll get to that when we get to investment accounts, but that’s something that you want to keep in mind. Ultimately knowing how much you’re spending and where that money is coming from and what changes are going to happen due to this life event is really where we want to get our head around is going to help us start thinking through all the different issues there.
Radon Stancil:All right, so now we’ve got these estate settlement issues. So there’s a couple of different scenarios here that you’d have to think through. First, ultimately, did your spouse die, and again, you could say my parent if this were a parent, with a will and in the will, was there an executor appointed that is alive and is here? If yes, then the executor now is going to need to contact the attorney that helped with writing up the estate plan. If there was not an attorney that’s still around, contact a different attorney. A lot of attorneys work in helping people go through probate. They basically say, “Look here, we’ll help you go through this whole process and make sure everything’s done correctly and works in a good amount of time.” So you want to reach out to an attorney to help with that probate issue, especially if there’s a lot of assets that are going to go through probate.
If the only thing you have that’s going to go through probate is a house and you own that house jointly, well then that’s going to be a very easy process because you’re not going to really have to worry so much about the whole idea of probate. We encourage on that point, by the way, all of our clients to have beneficiary designations even on their non-IRA, non-401K accounts, so like if you’ve got an account at Charles Schwab or a TD Ameritrade, almost to be Charles Schwab as well, Fidelity or any of those types of places you can set beneficiaries even on your brokerage accounts. And that just avoids this whole idea of probate. If you’re at a bank, you can do the same thing. That’s a little side point there.
But what if the person passed away and they did not have an executor that was appointed? Well, now likely at this point, either you or a family member is going to need to be appointed as an executor and then they’ll have to go through all that information and that’ll have to go through a little bit of a court proceeding as well. Again, a probate attorney can help you set that up.
Now, what if we’ve got more assets, meaning we inherited some money, we’ve got more assets than what we personally need. There is a feature that we can disclaim a part of our assets if there are contingent beneficiaries set up. And the reason why that might be done is let’s pretend that I’m older and my spouse is leaving me a sizeable 401K IRA that I’m going to have to start taking required minimum distributions on at my current scenario would put me in a much higher tax bracket. I could disclaim that down, say to a child or a grandchild, and then when they take those distributions out, it’s at a much lower tax bracket.
That’s just a little thing. That’s something you really need to discuss with your financial advisor or a tax CPA, something to at least consider. There might be accounts that need to have ownership changes. If you inherit an IRA, that’s an example. It’s going to have to have a new ownership if you’re going to take that over. And so that’s a really important thing to say is what accounts need to have ownership change.
Here’s one that’s probably not going to be as common, it used to be more common, but do I exceed the estate tax guidelines? Right now as an individual that’s roughly 12.9 million, for a couple 25.8 million. If you are going over that, well, then you’re going to have some estate tax issues.
What about this? What if you just don’t know? Maybe there’s some property that you can’t identify yet, maybe you’ve heard about it, maybe you forgot about it. What can you do? A couple things here about things that maybe we just wouldn’t think about is if the spouse or parent had miles or points on their credit cards, a lot of times you can get those transferred over. By the way, safety deposit boxes for anybody who uses those, it does give us a little caveat here that you need to follow probate rules before opening somebody else’s safety deposit box. And then don’t forget to search state agencies and unclaimed property site so that you can say, is there any unclaimed property maybe that’s out there so you can get all that taken care of.
Another thing to think about is do you need to update your own estate plan now because what you had been was going to be leaving it to your spouse. Do you need to update that, rethink that? That is something to consider. And then something that is becoming more and more common is digital asset. Are there digital assets? Did your spouse, did your parent own Bitcoin, for example? That’s a digital asset and you want to make sure those are preserved and that they pass along as well.
Murs Tariq:Okay, the next big topic when we’re considering the passing of a spouse or parent is going to be around insurance. And the number one there is going to be life insurance. Was there any type of life insurance involved? Life insurance is a huge and really nice beneficial asset that transfers, the main reason being because it’s a tax-free transfer. So we want to pay attention to where was the life insurance, how much was the life insurance? If they were still employed at the time of death, a lot of times there are company life insurance plans that go away at retirement but if they were still working, they may be under a group life insurance plan that you weren’t aware of. So I would check with the employer for sure.
If the spouse was a veteran, there may be some benefits associated with that when it comes to death and burial benefits, survivorship pensions, any other benefits that came with that category. Something to think about, was the death accidental or work related? There are insurances under group plans, life insurance, accidental insurances that, again, sometimes we’re not aware that we have through our company, but they’re there for this reason to cover the company in all essence. If there was an accident or work-related death, there are coverages there that you would want to be asking questions around as well.
Was there a minor involved in the scenario? If so, then Social Security survivors benefits can kick in earlier, there could be benefits for the minor as well. And so there would be some things to think about there. And again, just coming back to let’s take an inventory of all the different insurances that we have. And I would say you always want to know what this is, death or not death, but this is a key time to take a look at all that and see what benefits we may be missing or if we’re overlooking anything.
Radon Stancil:All right. Our other is tax issues. We’ll start off with the home. With the home the thing to consider is as the way it works on your primary home is I can have capital gains as a couple up to $500,000 currently that I do not have to pay capital gains. That means if I had a home I bought for 500,000 and now it’s worth a million, I could sell the home and I pay no capital gains on the 500,000. Well, if I’m only one person, an individual, it’s 250,000. And so, if my spouse passed away and I was thinking I was going to sell my house anyway, that might be something to consider because we have a little bit of time to do that about, two years. We just want to make sure we follow the rules there on that. And just again, something to consider.
The other thing is did you own other property jointly? If so, you will get a step-up in basis if we do things correctly on the spouse, what they owned. So let’s say you had a rental home, something that was not your primary home and then you’re going to get a step-up in basis in the half that they owned. So we have a nice flow chart on that. Will you receive an step-up in basis? If you were in that situation, we can provide that for you as well.
Did your spouse pay all their taxes on their income for the year? That’s something that’s going to need to be taken care of in the year of death. Did you file your taxes married, filing jointly? If so, you can continue to file that year, in the year your spouse passed away. So keep that in mind, you’ll still get that benefit. Do you have any dependent children? If so, you might qualify for widower’s tax filing status for two years following the year of your spouse passing away. So again, that this is a good conversation to have with your financial advisor, financial planner or your CPA, and your CPA.
Murs Tariq:Okay. The next category is going to be investment and asset issues. This could be anything around accounts that were in your spouse’s name. So for example, if there were stock accounts in a brokerage account, that’s one type of account. If there’s stock options or grants with their company, that’s another type of category. And things you want to be thinking about there, well, where is the money held and is it easily transferable? Is it going to be a forced cash-out? Will there be a step-up in basis like Radon was just talking about on the property? And so that’s one category. Then you’ve got, did my spouse have any IRA or 401K money, which has beneficiaries attached to it? And typically we see the spouse as the primary beneficiary. So understanding the process of getting it, there’s options for the spouse and the most common option is that the spouse can actually combine their IRA money with their deceased spouse’s. But that’s not always the answer, but it’s a very common one. There’s things to think about there that you would want to walk through with your financial advisor as well.
And then any other assets, whether it’s if your spouse owned a business and there was any type of plan in place to cash the spouse out or any type of buy sell agreements through life insurance or anything like that, and any other annuities or illiquid assets. There may be non-pension type annuities that are generating income and that can also be transferred into the surviving spouse’s name. Any other illiquid assets that probably transferred through wills or trust documents like that or have special transfer on death provisions within them that you would want to review and understand the options there.
And this is not an exhaustive list, by the way, there’s all types of assets that we deal with, personal property, all these different things that you want to make a nice inventory of and just start tackling one by one. Here’s what we have to deal with and here’s the process or how we have learned to transfer each and every one of these.
Radon Stancil:All right. Just a couple little wrap up things here to think about. Cybersecurity we talk about all the time. So some things you want to consider is that your spouse’s email account, driver’s license information, social media accounts. If you’re in a place to go ahead and shut those down or make sure that you change passwords, get those kind of things locked in so that nobody’s out there trying to steal an identity there. Also notify your credit bureaus that your spouse has passed away. Again, that’s just going to help it to make sure nobody’s out there trying to use their identity or get involved in those particular things.
I know we went through this relatively quickly, but I want to reiterate a couple things. Number one, we’ve got a blog written on this particular topic. Number two, if you’re looking at this idea or you’re in this situation or you feel like you want to have this information, we do have checklist on all of these that we are more than happy to share with you. So contact our office if you have questions specifically that you’d like to hop on a call with myself and Murs, you can go to our website, top right-hand corner, click on schedule call. Our calendar will come up and you can schedule that call. We’re glad to hop on a 15-minute call. It’s no cost to you. It’s just a way that we can be able to at least give you some answers.
We hope this has been helpful. Again, we’ll look forward to talking to you next…