Handling the Unexpected: Death of a Spouse

The death of a spouse can be devastating. Sudden losses can be even harder. If your spouse managed the majority of the financial responsibilities, even just paying bills can seem overwhelming. But you can work your way through it. It is manageable.

Try not to make any long-term decisions right away. Take your time. Emotional times are not the best times to make decisions.

Paperwork
Gathering the proper paperwork is the first step in settling your spouse's affairs. Start with the following:

• Death Certificate
  The death certificate will be needed for many financial procedures you will encounter. You should request several copies from the funeral director or county health department.
  
• Insurance Policies
  These will help you determine benefits you are entitled to.
  
• Marriage Certificate
  If you can't find your marriage certificate, you can usually get a copy from the courthouse of the county you were married in.
  
• Birth certificates
  - for Dependent Children.
  
• Certificate of Discharge from the Military
  If your spouse was in the military, you may need his or her certificate of discharge to collect benefits.
  
• The Deceased's Will
  
• Complete List of all Property

Many of the documents you need may be held in a safe deposit box. If you can open this safe deposit box before your spouse's death, take out all the contents of the box. Some states seal the boxes after a death, even if the box is registered in both your names. If your spouse has already died and the box is sealed, consult your attorney about getting court permission to access the box.

Get your finances in order
If you receive a life insurance benefit, save that money. Put it in an interest-bearing account such as a savings account or money market fund. But keep it liquid. You may need it.

Make sure you have health insurance. Call your spouse's company to see if you're still covered and for how long. If you're not, get medical insurance right away.

Use the paperwork you gathered to claim the following:

Life Insurance Benefits
Most likely, the company will pay the proceeds directly to the named beneficiary in either lump sum, fixed payments or as interest payments on a larger amount. It may take several weeks for you to receive payments. If your spouse is named as your beneficiary on your life insurance policy or retirement plans, you should take this time to name another beneficiary.

Social Security
Widows are eligible for a $255 death payment designed to help pay for funeral costs. You may also be eligible for survivor's benefits, depending on your age and if you have any dependent children.

Employee Benefits
Your spouse may have had life insurance, a 401(k) plan, vacation or sick pay, and other benefits to which you're entitled. Contact the human resources director at your spouse's workplace for a list of benefits. If your spouse was employed by a large company, you will still be eligible for health insurance under COBRA legislation for 18 months after your spouse's death.

Veterans' Benefits
If your spouse served in the military, contact Veterans Affairs. You may be eligible for burial expenses, money toward a plot or headstone, as well as disability benefits if your spouse already was receiving such payments. VVeterans are also eligible for free burial in a national cemetery.

Miscellaneous Benefits
If your spouse belonged to a credit union, a labor union, the American Legion, a college alumni group, or other organizations, you may be eligible for insurance coverage or assistance programs.

Wills
A will is a document that states what will happen to your assets upon your death. It will also determine who inherits your property, who will be your children's guardian and who will be the executor of your estate - the one in charge of your affairs after you die. If there is no will, all these decisions are made according to state law.

The executor of a will is in charge of gathering the deceased's assets and distributing them according to the terms spelled out in the will. He or she is also responsible for:

• Paying funeral bills, taxes, and life insurance
• Obtaining death certificates
• Making funeral arrangements and helping with burial arrangements and the obituary
• Dealing with creditors
• Handling property sales and appraisals
• Calling the life insurance agent and requesting claim form
• Making a claim for retirement benefits
• Filing federal, state and local tax returns
• Notifying banks, insurance companies, brokerage firms of the death
• Taking inventory of assets and liabilities
• Updating insurance policies and changing beneficiaries
• Having the will admitted to probate by going to the registry of wills
• Opening a checking account for the estate -- this requires a taxpayer identification number
• Paying all liabilities

Testamentary letters
Whereas wills provide for distribution of larger assets like homes, cars, and bank accounts, testamentary letters designate who receives smaller items such as china, family photos, and jewelry. This letter is a handwritten document, and it should be referenced in the will. Many states recognize a testamentary letter as legally binding, but it is probably a good idea to have your letter signed by a witness.

Trusts
With a trust, you can leave your money to a beneficiary and still have control over how the money will be put to use. It lets you designate how and when the beneficiary receives the funds. For instance, you can require that the funds be invested conservatively and that the beneficiary not gain access to the funds until he or she is a specific age. Also, a trust will protect the money from creditors if it provides that funds cannot be taken from the trust to settle a beneficiary's debt.

Living trusts are trusts that are set up and funded while the creator is still alive. When going through the process of settling the estate, the assets in a living trust do not need to go into probate court, saving beneficiaries both time and money. Whereas a will is a public document, a trust, in contrast, is a private document and may therefore be more difficult to challenge.

Living trusts can be either:

• Revocable — Revocable living trusts permit changes to the trust until the time of death.
• Irrevocable — Irrevocable living trusts cannot be changed once set up. They are usually established to remove property and its growth from the estate to save estate taxes and to provide for beneficiaries.

Taxes
This is just a brief introduction to some of the tax issues facing you. Taxes can be quite complicated and you should consult a professional tax advisor for more help.

Within nine months, you are required to file an estate tax return if the assets of the estate exceed the threshold for taxability. Your spouse's estate will not be subject to estate taxes if its net worth is less than $1 million. That threshold will rise each year until the complete repeal of the estate tax in 2010. Taxes, which can be as high as 50 percent, must be paid on any amount above the threshold amount. You also are required to file annual income tax returns reporting any income earned by the estate.

The Unlimited Marital Deduction allows you to avoid estate tax completely if your spouse has left everything to you in his or her will and you are a U.S. citizen.

You must file a final federal and state income tax return for your spouse on income earned that year up to the date of death. As with your return, this is due by April 15th. You can file a joint return as long as you do not remarry prior to the end of the year he or she died. If you have a child still at home, you can use the joint tax rates to figure your income taxes for two additional years.

Some smaller details
Review your will and make adjustments to reflect your new situation. You'll probably need to change who will inherit your assets and you may need to decide on a new executor. Change accounts and jointly held property into your name including credit cards, deeds, etc. You do not need to go through the process of applying for new, individual credit card accounts.

A new financial picture
Once the immediate financial matters are taken care of, you need to settle into your new financial situation.Creating a budget is the first step toward financial security.

Create a budget by writing down your expenses to find out where your money is going. Pull out your credit card bills and bank statements from past years as guides to your spending habits. Then estimate how much your new bills will be. Be sure to include expenses for entertainment, clothing and other major expense categories. Put in some money for savings. It may take several months to fine-tune your budget.

Now estimate your monthly income. Don't include potential income - only income you are sure to receive. Make sure you know which benefits you will be receiving and for how long.

Check your budgeted expenses against your income. If you have extra income, you should try to save even more. If your expenses are greater than your income, you need to trim your expenses until they match your income.