It doesn’t matter whether a spouse passes away suddenly or after a lingering illness: for most of us, finding ourselves as widows or widowers is the most disorienting experience we will ever face. Because adjusting to this new reality is so difficult, most money tasks for new widows and widowers tend to be put off until a later date. It’s best, the argument goes, to wait until a period of emotional realignment has taken place.
But there are a few money tasks for widows that really can’t be put off – things that need to be tackled quickly. At least, that’s the point reporter Liz Weston makes in her most recent column on the NerdWallet website. If you have recently lost a spouse, or if a parent or close friend is adjusting to widowhood, this advice will come in handy, and potentially help them avoid a lot of future financial aggravation. (Note that we refer to “widows,” but this issue affects surviving spouses regardless of gender.)
Money Tasks for Widows Shouldn’t be Postponed
Weston begins her column with advice we hear frequently when a spouse dies. “Widows and widowers are often told not to make any major decisions for a year or more after a spouse’s death,” she writes. The reason is simple: “Grief can cause you to make choices you later regret.”
Examples of decisions that shouldn’t be made in haste after the death of a spouse are plentiful: suddenly deciding on a poorly-planned move, for example, or making big decisions about investments or bequests. Generally, delay is the best strategy while the emotional dust has time to settle.
But this isn’t true for everything. “Some financial tasks, though, shouldn’t be postponed,” says Weston. She lists three – revising your budget, meeting with a tax pro and securing access to credit – that she suggests need to be tackled now to avoid unpleasant surprises later.
Money Tasks for Widows: Revising Your Budget
The first task Weston lists may seem obvious, but it’s easy to overlook in the midst of grief. “Your income and expenses are both likely to change after a spouse’s death, which means it’s time to draw up a new budget,” she advises. That’s because data shows a likely drop in income once a spouse passes away – a reduction that can be a hefty one.
“A 2020 study for the Federal Reserve Bank of Chicago found income for survivors dropped an average of 37 percent in the three years after a spouse’s death compared with the three years prior,” Weston writes. “You may have to figure out how to get by without your spouse’s paycheck or, if you were both receiving Social Security, how to live on a smaller benefit.” That’s because, when a spouse dies, the survivor typically gets only the larger of a couple’s two Social Security checks.
Other Budget Factors Affecting Money Tasks for Widows
Adjusting to widowhood can complicate the budget in other ways. “Of course,” says Weston, “you may have other resources. If you have minor children, you may qualify for additional Social Security benefits. You also may have life insurance proceeds, investment accounts or retirement funds you could use for living expenses. Figuring out how to create a sustainable income stream from these resources can be complex, so consider getting help from a fiduciary financial advisor.”
She adds that no-cost or low-cost advisory help might be available. “If money is tight, look for resources that provide free or inexpensive advice, including the Foundation for Financial Planning’s pro bono financial services and Advisers Give Back, a nonprofit that links people who need financial coaching with certified financial planners,” says Weston. This 2023 article from NerdWallet lists some additional strategies to find affordable financial advice.
According to Weston, becoming “suddenly single” can cause some expenses to diminish or disappear while others increase. Weston spoke with New Jersey financial planner Jennifer Murray, who was widowed at 43. Murray gave examples from her own experience: health insurance and grocery costs can go down, for example, but tax rates may go up, even if you have less income. “This so-called ‘widow’s penalty’ is the result of shifting from a favorable married-filing-jointly status to a less favorable single status,” Weston explains.
Money Tasks for Widows: Talk to a Tax Professional
All of this budget talk brings us to Weston’s second money task for recent widows: sitting down with a qualified tax professional. “A tax pro can help you estimate how your tax bills might change, advise you on how to handle inherited retirement accounts and suggest possible tax savings in the year your spouse dies,” she writes.
Another financial planner consulted for the NerdWallet story, Marianela Collado of Plantation, Florida, gave Weston some specific examples. “Before the year ends, she writes, “you could take advantage of joint filing rates to make Roth conversions or taxable withdrawals from retirement funds.” Collado also told Weston that widows may need immediate tax advice if their spouse “was using a large loss to offset investment gains or income in subsequent years.” That’s because “the ability to ‘carry over’ investment losses ends when the person who incurred the loss dies,” Collado says. A tax pro can advise you on the best strategies to avoid financial pain.
Selling the Family Home Can Often be Delayed
Although a rapid move after becoming a widow might be tempting, it’s not always best. “You have a little more time to decide what to do with a house you owned with a spouse,” says Weston. Taxes are one reason. “Normally, a single person can exclude a maximum of $250,000 in home sales profits from their income,” the article explains. “But a survivor has two years from the date of their spouse’s death to sell a jointly owned home and claim a $500,000 exclusion.” This provides some helpful breathing room.
“Just don’t assume that selling is the right choice, even if reducing taxes on home sale profits is your main concern,” according to financial planner Jennifer Murray. As Weston explains, “At least half of a jointly owned home will get a favorable ‘step up’ in tax basis at a spouse’s death. This reduces how much of the home sale is considered profit and, in turn, how much capital gains taxes might be owed. In community property states, both halves of the home get this step up.”
Money Tasks for Widows Includes Ensuring Access to Credit
Many if not most married couples have had joint credit accounts for decades. So, it might come as a shock when a surviving spouse suddenly loses credit card privileges and finds it a struggle getting them back.
“You typically can change the name on jointly held accounts to your own by notifying the institutions of your spouse’s death and submitting the death certificate,” Weston explains. “Credit cards, though, are usually a different matter.”
That, she adds, is because “Few credit cards are joint these days. If you have a card with your spouse, typically one of you is the primary account holder and the other is an authorized user. If you’re the authorized user, you’re technically not supposed to use the card after the primary account holder dies. When the issuer learns of the death, either from the person settling the estate or from Social Security, the account is usually closed.”
This can come as a total shock to many widows, especially older ones, who have had credit cards with their spouse for years, assuming they were joint accounts.
Credit Card Snafu: One Family’s Story
One financial planner Weston interviewed, Patti Black of Birmingham, Alabama, experienced this first-hand. “After her mother died, her parents’ only credit card was closed by the issuer,” Weston relates. “Black scrambled to help her 86-year-old father open a new card and transfer all the automatic bill payments that had been charged to the old card.”
“My mom was a stay-at-home mom, so it was never on anybody’s radar that she would have been the primary,” Black told NerdWallet. She says, had she known the account would be closed, she would have encouraged her father to get his own card before her mother died.
“It was an unnecessary hassle in a time when there were so many other things that needed to be done, and my dad was grieving,” Black says.
Rajiv’s Take: These Issues are Part of a Bigger Problem
In Rajiv’s view, the issues described in this article are part of a larger problem: the failure of families to do proper planning.
“It’s common for one spouse to be the main person doing financial tasks,” says Rajiv: paying bills, filing taxes, managing investments, maintaining the property, and so on. When that person dies without good advance planning, the survivors are going to have a big problem picking up the pieces.”
None of us wants to be a burden to those we love, but what does that mean? If there’s no plan, says Rajiv, you will become a burden whether you want to or not. “Think about it,” he says. “Will the surviving spouse take over, even if he or she is ill-equipped and uninformed? Worse yet, will your adult children or some other named agent take over and find themselves spinning in circles while they figure out what they are being asked to do?”
Rajiv elaborates, “After you’re gone, your surviving spouse or your kids or your named agents will have plenty to do: pay bills, file taxes, keep the house and cars in good repair, address health needs, and more. So, why not give them tools to manage these issues? Make sure they know where everything is. Make sure they have your passwords and account information. Make sure they have names of your accountant, your financial planner, your tax preparer, attorney, and so on.”
The point is clear, Rajiv states. “You can achieve the hope of not becoming a burden or leaving a mess for others. You can tame that fear – if you do the planning today.”
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(originally reported at www.nerdwallet.com)