By P. Mark Accettura, Esq. and Lynn Gross, Esq.

Your mortgage company, your daughter’s college, and the gas company don’t care that you’ve just lost a spouse. For these and other creditors, it’s business as usual. Clients are often hurt and angry that they must answer to uncaring credit department employees when, after the funeral, their monthly note is overdue. They cry, “Don’t you understand that I’ve just lost my spouse?” Unfortunately, the reality of day-to-day living isn’t suspended by your spouse’s death.

The death of a spouse can be a rude awakening. Not only must you now manage your household alone-a responsibility for which you may not have been well prepared even under the best of circumstances. You must also address the myriad of new responsibilities resulting from your spouse’s death.

Ready or not, important tasks must be attended to. Get help, get counseling, but get things done. Pay professionals if you’re not able, literally or emotionally, to take care of business! The cost of professional help pales in comparison to costly mistakes. The sooner you get started, the better. This work will not only avoid problems down the road, but also may momentarily distract you from your grief and sense of helplessness during this difficult period. “Too much to do” is better than “too much time to ruminate.”

GETTING STARTED

Getting started is more important than where or how to start. That said, as a matter of pure necessity, you’re going to need cash, cash and more cash. You will quickly discover that much of your net worth, no matter how substantial, isn’t readily accessible. Real estate, IRAs, mutual funds, and retirement accounts may not be readily convertible to cash. Life insurance typically takes at least thirty days to process, so you won’t have immediate access to the proceeds. You might rely on credit cards to fly your kids in for the funeral and to pay the caterer, but you’re probably going to need to convert other assets to cash to satisfy your other short term needs.

Investigate the following potential sources of immediate cash:

1. Cash in bank, brokerage, or credit union accounts in your own name or held jointly with your late spouse.
2. Certificates of deposit (CDs) can be liquidated without penalty for early withdrawal at the death of an owner.
3. Borrow against your brokerage account. Because such loans are secured by your account there is minimal paperwork and therefore little delay. Borrowing is tax-free and is therefore preferable to selling investments.
4. The pre-age 59-½ penalty on your spouse’s IRA and annuities is waived at the account owner or annuitant’s death. However, the distribution is subject to income tax.
5. Obtain a cash advance on your credit card from your local bank.

Satisfying short-term cash needs is one of your immediate concerns. Once the storm of the first few months has passed, though, you will need to develop a long-term financial plan. That is, you must identify sources of income and necessary expenditures, to begin charting your long-term financial course. Chapter Five discusses how to prepare a detailed analysis of your income, expenses, and assets to determine your available cash flow.

Of course, you have every right to indulge yourself in the weeks following your spouse’s death. Weeks, however, shouldn’t turn into months and certainly not into years.

You may need to discipline your spending habits so that your available cash flow matches your income needs. Spending too little is just as bad as spending too much. We’ve seen wealthy widows agonize over even minor expenditures, often depriving themselves of deserved personal pleasures such as recreation, travel, and domestic help.

On the spending side, you should develop a budget, separating recurring essential expenses from discretionary expenses. The key is to live a full and thoughtful life within, not above or below, your means.

After satisfying your immediate need for cash, you should inform the Social Security Administration (1-800-772-1213) of your spouse’s death, and begin the Social Security benefits claims process. You may apply either by phone or complete a claim form at the local Social Security Administration office. The claims process is discussed in greater detail in Chapter Four.

Make sure you order at least 15 certified death certificates from the funeral director. You will need to provide a certified copy to claim your spouse’s benefits, transfer investments, file tax returns, and sell real estate. Things will go much more smoothly if you don’t run out.

Notify your spouse’s employer of his death, and file for any benefits owed you, such as life insurance payments, pension income, and health insurance coverage. Call the Human Resources Department, or similar department, to find out which benefits you are entitled to and how to obtain them. Then, notify relevant life insurance companies of your spouse’s death. Have the actual policy, or at least the policy number, before calling (see “Claim Procedure” in Chapter Four). Eventually, you will have to write a letter to both the employer and each insurance company to formally request benefits. Your letter should request payment of benefits and contain your spouse’s full name, his social security number and date of death. Attach a copy of the death certificate to each letter.

Contact the financial institutions where you and your spouse have accounts. Find out which accounts you may access (checking and savings) and which accounts you can’t. If you and your spouse had joint accounts, transfer them to your name alone or to your revocable trust. You will be asked to produce a copy of the death certificate at the bank to complete these transfers.

Assets owned by your spouse alone (and not owned in trust), that do not name a beneficiary, will be part of his probate estate (see “Assets Passing Through Probate” in Chapter Seven). Once you have been appointed as the personal representative of your spouse’s estate (see “Appointment of Personal Representative in Formal/Informal Probate” in Chapter Seven), you should re-title such accounts to the “Estate of [your spouse].” You will need to present the financial institution with a copy of the letter authority received from the probate court formally appointing you. You should apply for and obtain a tax identification number for your spouse’s estate and use that number to open the account. Your attorney or accountant should apply for the tax identification number using IRS Form SS-4.

Your late spouse’s revocable trust became irrevocable at his death. You will need to present the financial institution with a copy of the trust appointing you as successor trustee (even though they likely already have a copy somewhere in their archives), and establish your authority over the account. Although the name of trust accounts stays the same, you must remove your spouse’s social security number f and replace it with a new tax identification number received from the IRS from information supplied on Form SS-4 (see Chapter Eight: “Tax Reporting”).

Finally, you should assemble a professional team of advisors including an accountant, an attorney, and a financial advisor. If you are already working with professional advisors, simply give them a call as soon as you can (but not more than thirty days) after your spouse’s death. If you haven’t been working with professional advisors, specific recommendations for locating a qualified accountant, attorney, and financial planner are located at the end of Chapters Eight, Nine, and Five, respectively.

Valuable resource materials can also be found in the Directory of Resources. An accountant will help you with your spouse’s final income tax return and other tax reporting (see Chapter Eight). The attorney will assist you in administering your spouse’s trust, or probate estate (if applicable), as well as to evaluate your own estate planning needs (see Chapter Seven and Chapter Nine, respectively). Ask your advisors what you should bring to your first meeting so that your time together can be as productive as possible.

As a general rule, inherited assets are received income tax free. The primary exception is “income in respect of a decedent,” or “IRD.” Income in respect of a decedent is income earned by a decedent before death, but not paid until after death (IRD is discussed in greater detail in Chapter Six: “IRA and Retirement Distributions” and Chapter Eight: “Tax Reporting”). Examples of IRD include bond interest, deferred compensation, you spouse’s last pay check, IRAs, 401(k)s, and other retirement plan distributions. Items of IRD are taxed at your personal income tax rate in the year received.

In addition to being tax-free upon receipt, inherited assets receive a “stepped up” basis. Basis is the mechanism used in tax law to measure gain or loss when an asset is sold. Basis is a person’s investment in an asset, usually its purchase price. A step-up in basis is essentially a forgiveness of pre-death appreciation, allowing inherited assets to be sold income tax free. For example, if Harry paid $10,000 for a stock, his basis is $10,000. If he later sells the stock for $20,000, his gain is $10,000 ( $20,000 sale price less his $10,000 basis ).

If, rather than selling the stock, Harry left it in trust to his wife, Wendy, she can sell the stock immediately after Harry’s death and pay no tax. Wendy’s pays no tax because her basis is the fair market value of the stock on the date of Harry’s death. If Wendy waits a year and sells the stock when it has increased in value to $30,000, her gain is $10,000 ($30,000 sales price less $20,000 basis). To substantiate your new basis, it is extremely important that you document the value of your late spouse’s assets as of the date of death. The Asset Inventory With Values Worksheet will help you record the date-of-death value of all assets.

A full step-up in basis occurs when an asset is held solely in the name of the decedent. Different rules apply where assets are held jointly between a husband and wife. If the joint tenant is the decedent’s spouse, the surviving spouse receives a stepped-up basis on only one-half of the value of the asset. For example, if Harry and Wendy paid $10,000 for the stock and owned it jointly at the time of Harry’s death, Wendy’s new basis would be $15,000 (her $5,000 share of the original purchase price, plus Harry’s $10,000 stepped up basis on his half). This rule applies no matter which spouse supplied the funds to acquire the asset.

The Economic Growth and Tax Reconciliation Act of 2001 (“Act”) eliminates the federal estate tax effective in the year 2010. The Act eliminates the stepped-up basis effective in 2011. Interestingly, the Act contains a “sunset” provision, requiring Congress to ratify full repeal in 2010. Unless Congress, in 2010, again votes to repeal the estate tax, both the estate tax and the stepped-up basis are retained. The delayed effective date of the Act and the sunset provision make it difficult to plan. You cannot be confident that either the estate tax or the stepped-up basis are a thing of the past. The solution is to keep good records and be prepared for any and all eventuality.

Your next task is to locate and organize important documents and records. If you and your late spouse kept good records, this process should be relatively easy. However, if you used the “big box” filing system, you have some work ahead of you. Organizing important documents and records will make the job of concluding your spouse’s affairs easier.

The information you gather will be used to:

1. Assess your current financial condition;
2. Develop a long term financial plan;
3. File income, gift, and estate tax returns;
4. Administer you late spouse’s estate or trust;
5. Help you create your own estate plan; and
6. Allow for the orderly conclusion of your affairs at the time of your death.

The best way to get started is to open a separate folder for each category of documents or set of records discussed below. Label each folder in pencil until you know how many you will need.

Locate all life insurance policies on your spouse’s life, and put them in a folder labeled “Life insurance policies.”

Next, find your spouse’s original Last Will and Testament (“Will”).

Your attorney may have it in his or her file, or it may be in your home safe or bank safe deposit box. The Will should be filed with the probate court of the county in which your spouse resided at the time of death, even if there are no assets to be probated. Then, look for other estate planning documents such as his revocable trust, irrevocable trust, or charitable trust. Your spouse’s Will and trust name the people with authority to handle his post-death affairs. You are likely to find that you are the only person with that authority. If you are named with others, however, you should make a list of their names, addresses and phone numbers. You may also find a list disposing of specific personal items, sometimes called a “Personal Property Memorandum,” with your spouse’s other estate planning documents. Keep all of these items in a folder labeled “Estate Planning Documents.”

Make a list of the name, address, telephone number and social security number of each of your spouse’s children (if you are not the natural or adoptive parent) and other beneficiaries named in his Will or trust. You may need this information later, especially if any assets must be probated. Keep this list in a separate folder labeled “Beneficiaries.”

If your spouse was a veteran, you may be eligible for veterans benefits. To find out, you will need to contact the Department of Veterans Affairs and send a copy of his military records, including honorable discharge papers showing his branch of service, dates of service and rank. Keep these papers in a folder labeled “Military Records.”

Finally, locate the last two years income tax returns and put them in a folder labeled “Tax Returns,” along with any gift tax returns (Form 709) you find (see “Record Retention” in Chapter Eight).

Next, gather asset information. When it comes to financial matters, your task is threefold: first, you must create a folder for each asset (real estate, brokerage account, IRA, etc.). Second, you must enter each asset on the Asset Inventory With Values Worksheet. Finally, you must enter the date-of-death value of each asset under the column that corresponds to how the asset is owned.

Review pages: Asset Inventory with Values Worksheet

Assemble the following information with respect to each parcel of real estate owned by your spouse either individually or with others: a copy of deed (look for a document called either a “Warranty Deed,” or “Quit Claim Deed”), copies of most recent mortgage statements, including balance due, loan number, lender name and address, the property address, and copies of the last property tax bill. Put these items in a separate folder labeled “Real Estate.” You should create a separate folder for each parcel.

Next, locate the most recent bank, savings, and credit union account statements. Put the statements in a folder labeled “Bank Statements.” The statements should show the account owner, the name and address of the institution, the type of account, the account number, and the balance.

Find the most recent investment, mutual fund, brokerage, or other similar account statements. The statement should contain the exact name of the account, the number of shares, date purchased, purchase price (cost basis), and current value. File each account in a separately labeled folder. It is extremely important that you separate pre-tax investments (such as IRAs, and other retirement accounts) from regular (previously taxed) accounts. Pre-taxed savings are subject to an entirely different set of rules when it comes to investing, tax and estate planning (see Chapter Six: “IRA and Retirement Distributions”).

If your spouse had any stocks or bonds in “certificate” form (meaning that you have the actual stock certificate or bond), you should put a photocopy of the stock or bond in your folder and store the original in a secure place. Lost stock certificates and bonds are difficult to replace. If you have not kept records, you could even lose your investment. You should re-register the stock or bond in “street name” with your financial advisor, brokerage house, or bank as soon as possible. Securities held in street name are logged in the books of the financial institution. In exchange, your account at the institution (which should be in the name of your revocable trust) is credited with a corresponding number of shares.

To transfer stocks and bonds held in certificate form into street name, your financial advisor will need an original death certificate (and an original probate court letter of authority if the stock or bond was in your spouse’s name alone) for each company involved (for example, five stock certificated for one company is treated as a single transfer). You will be charged a fee based on the number of companies involved. Allow at least ten days for sales or other transfers in certificate form to clear. If you want to do it yourself, you can contact the “investor relations department” of the company in question and ask them how to go about transferring the shares into the name of the new owner. However, we recommend that you enlist the help of a professional. Having a particular financial institution make the transfer on your behalf does not obligate you to use their financial planning services in the future. Once you go through this process, you will undoubtedly resolve never again to own stocks or bonds in certificate form. Enter the value of the stock or bond on Asset Inventory With Values Worksheet.

If your spouse had an interest in a corporation, LLC, partnership, or other “closely held” (meaning not publicly traded on a stock exchange) business, gather all of the information you can find evidencing your late spouse’s ownership interest and file it in a separately labeled folder. The folder should contain the name of the business, the names and addresses of all officers or partners, the Articles of Incorporation (for corporations), Partnership Agreement (for Partnerships), or the Operating Agreement (for Limited Liability Companies, or “LCC”). Save business tax returns, if you find any, as they often contain valuable information including the names of all owners and the profitability of the enterprise. Also look for a “buy sell agreement,” where co-owners often contractually agree to buy out the deceased owner’s interest at death. Often, buy/sell agreements are “funded” with life insurance to allow the surviving owner to purchase the deceased owner’s interest in a single payment. When it comes to closely held business interests, you should contact the company’s attorney and accountant as soon as possible to determine your rights and responsibilities.

Save all life insurance policies. You may be required to submit the original policy to collect the proceeds. Review Chapter Four for tips on making a claim and the various settlement options available. Each insurance company should send you “Form 712” along with payment of the proceeds. Form 712 indicates the amount of the proceeds (including accrued interest) and the beneficiary to whom they were paid. Form 712 must be attached to the estate tax return (if one is required). Unfortunately, insurance companies often don’t send Form 712 unless specifically asked. Life insurance policies and Forms 712 should be filed in the “Life Insurance Policies” folder.

Next, determine the beneficiary of your spouse’s IRAs, 401(k) Plan, company retirement plan, or any other type of retirement plan. Most likely, you, as surviving spouse, are the sole beneficiary. You must determine when and how to begin taking distributions from these plans (see Chapter Six: “IRA and Retirement Distributions”). Request a copy of the beneficiary designation form from the plan administrator. Your request should be in writing, and should include the date of your spouse’s death, social security number, and a copy of the death certificate. Keep all retirement plan documents in a separately labeled folder.

Gather information on outstanding debts, such as credit card statements, medical bills, personal loans, vehicle loans, mortgages, etc. Keep these items in a folder labeled “Debts.”

Keep records of expenses that are deductible on the estate tax return: funeral expenses, accountant and attorney fees, administrative fees, and appraisal expenses (see “Form 706” in Chapter Eight). Put these items in a folder labeled “ Estate Expenses.”

Finally, read your mail carefully so that you don’t throw away important documents or notices. Ferreting out important mail has become more difficult in recent years as junk mail purveyors have mastered the art of making junk mail look important. File incoming mail in the appropriate file folder on a regular basis.

Sift through your safe deposit box. Add the name of a trusted family member to the box so that it isn’t frozen at your death. States no longer freeze safe deposit boxes. However, if the only name on the account is that of the deceased, authority to enter must be obtained from the probate court.

Asset Inventory with Values Worksheet

Determining the value of all assets is important to determine whether estate tax is due (see “Planning to Avoid Estate Tax” in Chapter Nine), and to establish your new basis. Estate tax and basis are determined using the date-of-death value of your spouse’s property.

To ascertain date-of-death value:

1. Review investment account statements (including IRAs and other retirement accounts) for the date of death value of account assets.
2. For stocks and bonds, the date of death value is the average between the high and low for the date of death. If your spouse died on the weekend, take the high and low for Friday and the high and low for Monday and divide by four.
3. Obtain certified appraisals on all real estate. The state equalized value (or other tax value used in your community) and a “market analysis” prepared by a real estate agent are not sufficient.
4. Obtain certified appraisals on all closely held business interests.
5. Depending on the size of the estate, you may also need to obtain an appraisal of your spouse’s personal property, especially if your spouse owned any collectibles of value (art, wine, vintage cars, etc.).
6. The value of life insurance proceeds is reflected on the Form 712.
7. Save the stock page from your local daily newspaper for the day of your spouse’s death. If he died on a weekend, save Friday and Monday’s paper.
8. You may use the sale price as the date-of-death value of any asset sold within nine months of death as long as the purchaser is an unrelated third party and the sale was “arm’s length” (i.e., not a below market sale to beat the tax man).

It is important that you keep current with your household bills. By their nature, creditors tend not to be sympathetic. You could ruin your credit rating if you fall behind in your payments. If you have the cash, you should pay all household expenses as well funeral, cemetery, and burial expenses within thirty days of being invoiced. Save evidence of your payment of all funeral related expenses as they are deductible for estate tax purposes.

Also, the fact that you paid your late spouse’s funeral bill will count in your favor in the event a dispute arises as to whom should be appointed as your late spouse’s personal representative.

Normally, you shouldn’t save routine household bills (unless you want to build an addition on your home to house them). However, you will need them after your spouse’s death to calculate your average monthly expenses. Also, look at your checkbook register for the prior twelve months to identify non-recurring expenses such as car repair, un-reimbursed medical, dental, prescription drug expenses, household services, and gifts. Make a list of each household expense and your average monthly payment.

Typical expenses include:

1. Mortgage payments.
2. Home equity loan payments.
3. Utilities.
4. Food and clothing.
5. Car payment.
6. Car maintenance and repairs.
7. Installment loans.
8. Credit card debt.
9. Medical expenses.
10. Taxes (federal, state, property).
11. Insurance premiums (homeowners, life, health, disability, auto, long term care.)
12. Miscellaneous expenses (entertainment, education, pets, gifts, charity, club memberships, professional fees, etc.)

Separate your bills, your spouse’s bills, and your joint bills. Pay your bills and your joint bills first, so that your own credit history is not adversely affected. Your spouse’s individual bills should be paid from the trust or estate checking accounts you opened, as discussed above.

Check your spouse’s individual credit card statements (ones where you are not on the account) to determine whether he had credit life insurance that will pay off his outstanding balance at death. If there is no insurance, contact each creditor directly to inform them of your spouse’s death. You may request an extension of time to pay or arrange for a negotiated settlement of the debt. Explain that your spouse’s estate is not sufficiently liquid to immediately pay the debt in full. Many credit card companies will accept an immediate reduced payment rather than wait months for payment of the full amount. You will need to provide the creditor with a copy of the death certificate. It is important to confirm any negotiated settlement in writing when sending your final payment.

If you and your late spouse were joint obligors on all of your credit cards, you should establish new credit in your own name. Developing your own credit history is important if you intend to borrow in the future. Don’t take your spouse’s name off joint credit cards right away; otherwise you will be bombarded with irritating calls from creditors preying on the recently widowed. Use your new line of credit and completely close out the joint credit cards and lines of credit when they are paid off.

Identify your immediate sources of cash flow, including:

1. Bank, brokerage or other accounts that you owned individually or jointly with your spouse;
2. Salary;
3. Social Security;
4. Pension benefits from your spouse;
5. Annuity payments;
6. Rental Income;
7. Insurance income;
8. Investment income (interest and dividends);
9. Alimony and/or Child Support; or
10. Proceeds from the sale of an asset.

Make a list of each item and the monthly amount you expect to receive. The income and expense information you gather is the starting point to creating a financial plan.

Download and print out the GETTING ORGANIZED SUMMARY CHECKLIST to help assist you in organizing your affairs. (PDF DOCUMENT.)

To help, we have a handy 2 page Getting Organized Summary Checklist.

Click here to open and print the Getting Organized Summary Checklist PDF document.