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Budget Basics

What Documents and Information to Assemble

Have the following documents in a central location: will, trust, and letters of instruction; life insurance policies; retirement plans and IRA information; birth certificates; military discharge papers; marriage license; deeds on property owned by your spouse; vehicle registrations for motor vehicles, trailers, and recreational vehicles; recent bank and financial account statements; recent tax returns; loan documents, including mortgages and other loans; list all outstanding debts, as of date of death, such as credit card bills and utilities. Copy the most recent bill received right after date of death; Social Security cards; financial statement or list of assets as of date of death. Get 10 to 15 copies of your spouse’s death certificate for the Social Security Administration, lenders, insurers, and other institutions so you can change the name on applicable accounts or collect any money that is owed to you.

The Question of Probating Your Spouse’s Estate

Probate is the legal process where a court determines if a will is valid or that no will exists and provides distribution of assets to beneficiaries as designated in the will or by law if no will exists.

You may not be required to probate your spouse’s estate. Even if a probate isn’t required, most states require you to file the will (with the probate court or the county recorder’s office) within a certain number of days of your spouse’s death. Call the probate court or contact an attorney.

Probate is not needed in the following situations:

• Property held in trust. (Many people today plan their estates to avoid the costs and delays of probate through a revocable living trust. Property that has been conveyed and titled in the name of a trust need not be probated.)

• Joint tenancy with right of survivorship property (often bank and financial accounts and sometimes real estate) pass to the surviving joint-tenant free of probate. This is sometimes called "tenants-by-the-entirety" for a husband and wife.

• Financial accounts or other assets often pass automatically to a third party through a Payable on Death (POD) designation.

• Life insurance, annuities, and retirement benefits usually have a beneficiary designation which controls the distribution of that asset free of probate.

• Small estates—most states allow the surviving widow or beneficiary of a small estate to simply file a form affidavit.

If a probate is needed, contact an attorney who is familiar with probate law. He or she will guide you through the simplest and most cost-effective way to handle the probate of the estate.

Paying Taxes

As a general rule, property you receive by inheritance comes free of income and estate taxes. A major exception is retirement funds in qualified plans, such as MBA accounts, 401 (K), 403(b) or IRA’s. To avoid paying an immediate income tax on retirement funds, be sure to review your options to roll over or receive periodic payments.

The year your spouse dies, you still receive favorable joint return tax rates and standard deductions. If a probate is necessary, and the probate estate has enough income, an estate income tax return may have to be filed. If not, the income earned after date of death is simply reported by the beneficiaries of the assets.

An estate tax return has to be filed with the IRS if the estate (including probate and nonprobate assets) exceeds $600,000. Some states have an inheritance tax. Check with an accountant on the income, estate, or inheritance taxes and/or returns that must be filed.

Pay Only the Bills You Should Pay

Before paying any bills, determine if it is your debt, your spouse’s debt, or a joint debt. You are responsible to pay your debts and joint debts. You aren’t responsible for your spouse’s debt, since your spouse’s estate will pay those debts.

Loan agreements you have signed with your spouse, credit cards held in both names or used jointly, property taxes on property you both owned, and household expenses are joint debts. Hospital bills, funeral expenses, and legal fees incurred because of your spouse’s death are estate debts.

You should continue to pay your bills and joint bills. You may use your money, money held in joint accounts, and funds you receive directly without a probate to pay bills and to cover all living expenses. You should not dispose of or spend assets in your spouse’s name that have to go through probate. Don’t forget the $255 one-time death benefit from Social Security. If you are short of income or assets because they are tied up in probate, once the probate begins you may be entitled to a monthly "widow’s allowance" from the probate estate.

Planning for the Future

It is very difficult to move on once the death of a spouse occurs, but it is in your best interest and your family’s best interest to plan for the future.

Disability planning: If you become disabled or incapacitated, does someone have a durable power of attorney or durable power of attorney for health care to help you?

Estate planning: Examine your will or trust. Perhaps you should consider a revocable trust so probate can be avoided at your death.

Financial planning: Do you have enough income for now and the future? Should you take a lump-sum distribution of retirement funds or installment payments? If you do this be aware of any undesirable income tax consequences.

Experiencing the death of a loved one is never easy, but when it is your spouse the financial realities must be taken care of or the consequences could be devastating. Unfortunately, millions of dollars are lost by widows and widowers every day through unnecessary taxes, excess estate and probate expenses, litigation, poor investments, and rip off artists.

Don’t let anyone take advantage of you; get the proper family, friends and professionals to assist you in making a sound plan that will protect your finances. At least you will have some peace of mind knowing that you made the right decisions regarding your financial future. It will be comforting for you and your family knowing that your hard earned money is safe, working for you and available if you need it for an emergency situation, day-to-day living or for pleasure.