Your money: How to deal with the paperwork scramble after a spouse dies

  • By Beth Pinsker,
  • Reuters
  • Estate Planning
  • Loss of a Loved One
  • Recordkeeping and Filing
  • Retirement Accounts
  • Estate Planning
  • Loss of a Loved One
  • Recordkeeping and Filing
  • Retirement Accounts
  • Estate Planning
  • Loss of a Loved One
  • Recordkeeping and Filing
  • Retirement Accounts
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When you are grieving a departed spouse, the last thing you want to think about is changing the title to your car.

Same goes for your house, your bank accounts, the retirement account you are inheriting and anything else of value that now belongs solely to you.

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Married couples have a certain ease when it comes to inheritance rules, often leaving everything to each other in a mostly unfettered manner. Many people have what estate lawyers call “sweetheart” or “I love you” wills, which means that spouses leave all of their worldly possessions to each other.

That is all good when one’s spouse passes away. The survivor, however, is left with a mess of details to sort through, because there is now only one name on all of those joint accounts, and that can cause problems for heirs down the road.

The government is a stickler for items of value having a clear legal owner because taxes are collected when assets are sold or transferred. If you die holding a solo title to something like a house, your state will insist on a legal process to re-register it to a new person, even if you clearly left it to a child in your will.

The process, called probate, is costly, time-consuming and public - all things most people like to avoid. Financial adviser David Demming is quite frank about it: “It’s a stupid thing to be exposed to,” he said.

Demming’s office in Aurora, Ohio, launches into a mad dash when a client dies to re-title all assets for the surviving spouse and reset beneficiaries.

Bank accounts come first, because people need ready access to money. If the original sign-up was done with the deceased’s Social Security number, you will need to transfer money to a new account, said financial adviser Ed Gjertsen II, vice president of Mack Investment Securities in Northfield, Illinois.

Then you need to start adding names to the account - either another trusted person with full access or add a transfer-on-death beneficiary which smoothly transitions the account to the person named. Most of all, make sure you have current power of attorney designations for somebody you trust, in case you become incapacitated in the meantime, said Monica Dwyer, an Ohio-based certified financial planner.

In the last year, more than 20 of Demming’s clients passed away. The average bill they faced to deal with their estates was $300. None went through probate.

Demming mostly sticks to using “pay-on-death” or “transfer-on-death” designations on all assets, rather than the legal structure of an estate trust, at least when the family dynamic is simple.

“If you are not trying to control from the grave, you don’t need a trust,” Demming said.

Complex structures

In more complicated situations, financial advisers recommend legally structuring assets in trusts, regardless of the total amount of your assets. This is not about avoiding estate taxes - which now affects only couples who have more than $22 million in assets on the federal level - but about making sure your wishes are carried out.

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Setting up a trust can run anywhere from $1,500 to $3,500 for a typical family - but it costs much more for wealthy families. Trusts are especially important if you have any sort of blended family, or anyone in the family who has special needs.

“You can have the surviving spouse live in the house, and then when they pass, it can go to the children from a previous marriage,” said Kate Ryan, a New York-based wealth management adviser at TIAA, referring to just one circumstance that could be handled by a trust.

For special-needs heirs, a trust could be set up to provide for their care for life, without disrupting current benefits.

Qualified retirement accounts like IRAs and 401(k)s, pensions and joint life insurance policies come with varying sets of rules about how they are inherited by spouses. Once the spouse takes control of the account in whatever way, then they need to decide on new beneficiaries.

The determining factor of how to handle most retirement accounts is whether the person who died had already started to take required minimum distributions from the accounts.

“You just have to get on top of (required minimum distributions), otherwise that can get pretty ugly,” said Dwyer.

As with most family money matters, advance planning and communication are essential.

“There are vacation homes that you think family will want to inherit – but it’s better to ask the kids. Oftentimes, the client finds out the kids don’t want it,” said Paulina Mejia, an estate attorney and head of the New York office of Fiduciary Trust Company International.

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