Death of Spouse Checklist and Pre-Planning Guidelines

The death of a spouse, besides being emotionally devastating for the surviving spouse and family members, can prompt many troubling financial questions.

How do we get a death certificate? Can we make a copy of the death certificate? Or do we need multiple original death certificates?

What happens to Social Security? Do we have to go to the local Social Security office?

How do we get any life insurance proceeds when a spouse dies? Can we even find the life insurance company? Has there been a merger or name change? Are there several life insurance companies involved? Are there other death benefits to track down? What about any survivor benefits?

Could the deceased spouse have used financial advisors in the past we don’t know about? What about insurance agents, stockbrokers, investment advisors, or bankers?

Are we sure there’s not a credit card we don’t know about? Do we have the “last” will and other estate documents? Are there bank accounts we don’t know about?

What happens with health insurance? Will this impact the survivor’s health care?

Is there a trust? Depending on the type, it may or may not avoid probate.

The foregoing should have got you thinking, and hopefully making some notes on what to discuss before your spouse dies! Make a checklist!

An specialist lawyer’s perspective

To better address some of these questions, and more, I recently interviewed John Crawford, a board certified tax lawyer specializing in business, asset protection, estate and tax planning matters and present his edited responses below. He’s admitted to the Florida and Georgia bars, as well the United States Tax Court.  John has over 40 years’ experience, he has earned the designation of “Super  ” every year since 2011.

The death of a spouse can be devastating. Besides the emotional impact, John, can you tell us about common planning shortfalls that can make the grieving even worse?

The worst situations I see generally arise out of failure to include the spouse in financial decisions and planning before death.  More often than you might think I get calls from a family member whose parent or spouse has just died, and the spouse doesn’t know where to start.

The deceased spouse handled all the family finances, and the survivor can’t even locate the checkbook. Worse, the survivor may not even be on the bank account!  Funeral expenses have to be paid for, but access to funds may be limited.

At the very least, make sure there are one or more joint bank accounts with sufficient funds kept in them to pay emergency expenses or a funeral bill, and that the surviving spouse knows what financial institution holds the accounts, where to locate the checkbook and how much is kept in the accounts.

Secondly, the surviving spouse needs to know what estate planning documents exist and where they are kept.  If accounts are in trust, he or she may need to produce a copy of the trust in order to prove authority to act and access funds.

If there are no immediate funds, many funeral homes will agree to move forward with funeral plans as long as a will is produced naming the person making the plans the beneficiary.  Even if immediate access to funds is not required, generally an original will and/or trust will have to be provided to financial institutions and possibly the court.

What basic planning instruments should all couples have?

Each spouse should have three basic documents: a will, a financial advance directive and one or more medical advance directives.  Most couples which have significant financial assets should also have one or more trusts.  The trusts can be either joint (one trust per couple) or individual (one trust per person); this is largely dependent on tax concerns and whether the couple manages their finances jointly or separately.

John, can you explain “financial advance directive” and “medical advance directives?”

The financial advance directive, often referred to as a durable power of attorney, designates one or more individuals to step in and pay bills, manage legal affairs, deal with insurance companies and possibly take tax and asset planning steps if the individual becomes unable to do these things.  Generally each spouse of a married couple designates each other in this role.  Often children are alternates.

The medical advance directive (or directives) has many facets.  The primary role is to designate one or more individuals to make medical decisions for you if you are unable, either temporarily or permanently, to make your own decisions.   This is often called a health care surrogate.

But these documents also often include a living will, to indicate your wishes on life support issues if you are terminally ill, contains medical privacy (HIPAA) waivers, to facilitate the ability of your spouse or other agent to communicate with health care providers, and may provide for specific instructions on medical and end-of-life care or including, in appropriate cases, a “do not resuscitate” order.

Can’t folks get these forms on the internet?

Advance directives are often thought of as “form” documents, since specimens can be secured from office supply stores and/or hospital and physician offices.  But they are very important and powerful documents, which should not be completed without professional advice.   I’ve seen children abuse powers of attorney to gain access to their perfectly-healthy parents’ funds to spend for their own purposes.   Children can also abuse health care directives to, as an example, exclude second spouses and significant others from loved one’s hospital rooms.  Your attorneys can properly advise you on safeguards to include in these documents and when and how they should be made available.

What else should be used?

It is often helpful to have one other document, sometimes called a “letter of instruction” or “love letter.”  Imagine you are in the room when your will and/or trust are disclosed to your children or other beneficiaries.

What advice would you give them?  Who would you suggest they go to for advice?  Are there particular values you want to instill in them?  Paths you wish to encourage them to follow?

Write this all down, to be given to them following your death.  While not a legal document, and not written with any formality, this might be what they actually value most and remember the longest after you’re gone.

These days, lots of folks consider videos, which can add a much richer, more loving dimension.

What does the will do?

The will contains basic directions on how assets will be divided at death; appoints a person (executor or personal representative) to carry out those directions and, if the individual has minor children, appoints a guardian for those children.

Who should consider trusts?

Trusts are not just for the wealthy.  Probably 90% of my clients have living trust arrangements, and those clients run the gamut from those living paycheck to paycheck to the very, very wealthy.  The primary purpose of these trusts is to eliminate probate expenses and hassle at the client’s death, and keep the client’s death wishes and dispositions of assets totally private, instead of having them a matter of public record.   Clients with significant wealth often rely on trusts to save taxes as well.  These can include income tax saving trusts such as charitable remainder trusts and IRA conduit trusts, and transfer tax savings trusts, such as annuity trusts (GRITS, GRATS and GRUTS) and spousal access trusts.

What is guardianship and can trusts help avoid it?

Guardianship is a legal process to take away someone’s rights and to appoint a person (the “guardian,” also sometimes called the “conservator”) to exercise those rights on the person’s behalf.

For seniors, this typically happens if cognitive issues like Alzheimer’s become a problem, and a Court needs be asked to appoint someone to write checks and manage assets – often against the senior’s will.

It can be messy, expensive, and demeaning.

A guardianship can be limited (only taking away certain rights, such as the right to manage financial affairs) or plenary (all legal rights taken away).  In most states it involves a relative filing a court petition, which is then served on the alleged incompetent person by a process server, and results in that person having to submit to a court-supervised incompetency examination.

Needless to say, it can be very traumatic, can lead to a lot of hostility by the alleged incompetent, and in my view is to be avoided if at all possible.

A trust, combined with one or more powers of attorney, can avoid this experience altogether.  Most trusts provide that, should the trust grantor become temporarily or permanently unable to handle financial matters as determined by one or more physicians, the successor Trustee can automatically step in, pay the bills and manage the finances, without any court process or involvement.

There is no “taking away” of legal rights; rather the new trustee works with the trust grantor to manage his or her financial affairs.  Certainly, situations arise where the trust grantor refuses to accept this assistance, and in those cases a guardianship may be necessary anyway, but in the vast majority of these situations I have seen the transition is accomplished smoothly and with little emotional hassle.

How frequently should estate documents be reviewed or updated?

I generally tell clients to take all their documents out of their safe deposit box or desk drawer every five years or so.  Review them to make sure they still accomplish your wishes, and call up your attorney and ask him/her if there have been any changes in federal or state law in the interim which might cause them to want to update their documents.

IF you have a dramatic change in family circumstances, such as the birth of your first child, the death of a child, a marriage, a divorce or even winning the lottery, you should promptly call your attorney as any of these can necessitate the need for a change.

And don’t hesitate to call your attorney if you read about any new development which might affect your estate planning documents.  For example, the SURE Act, which is currently making its way through Congress, will affect a multitude of clients who have stretch IRAs linked to their wills and/or trusts.  Depending on what eventually passes, many of those clients will want to immediately make changes in their documents.

What are some common problems you find after a spouse’s death?

Besides the general problem discussed above of a spouse’s lack of knowledge and lack of involvement in the deceased spouse’s finances and planning, there are a number of other issues we see which could be easily avoided.  For example,

  1. Typically, spouses hold their finances jointly, but it’s not uncommon to see a spouse want to keep “my own savings” in a separate account. This is fine, but often clients fail to put these individual accounts into a trust or add a beneficiary.  The surviving spouse then has to incur substantial probate expenses to acquire the asset.
  2. Many clients take the time and expense to create a trust, but then don’t follow through and transfer assets into the trust (i.e., “fund” the trust). This also can create unnecessary probate expense and, as a result, the assets may not get to their intended beneficiary and/or result in unnecessary tax liability.
  3. Or perhaps the clients do fund the trust, but then do not properly coordinate assets that are outside the trust, such as joint accounts and insurance policies, with the result that some beneficiaries get more than is intended, and some get less.

And in the worst cases, the spouse can be totally left out in the cold.  For example, I had one client that created a trust for his second wife and their child, then forgot to change the beneficiary on the life insurance policy that was supposed to fund this trust at his death.  Wife and child got nothing.

There are statutes in most states that protect spouses (and sometimes children) from these situations but, at best, the spouse may have to incur significant legal fees to get even a portion of the intended funds.  I served as executor of my father’s estate and had the “pleasure” of notifying his ex-wife that she was the beneficiary of an insurance policy that he had forgotten to change after his divorce (again, some states, but not all, now have statutes which can alleviate this problem, but best not to assume).

Here’s a problem that has become more commonplace: I’ve had a number of clients who have divorced, then gotten back together, but have not remarried.  The divorce would have invalidated provisions for the spouse in the will, so unless a new will is executed after the divorce, he/she may be left out in the cold.  The divorce may or may not have invalidated insurance, IRA and/or retirement plan beneficiaries; that depends on the terms of the policy or plan.  So in this scenario, it’s always best to make sure that current wills and beneficiary designations are signed.

Do you have any suggested checklist items for review while both spouses are alive?

Make sure that all financial assets are in one place easy to access.  Periodically, copies of recent statements in all accounts should be put in this file.  Passwords and access codes for digitally-accessed accounts should also be included, or at least directions on where to find them.

Make sure that both spouses have current wills, financial and health care advance directives, and trusts, if appropriate.  These should be kept in close proximity to the financial assets file.

Both spouses should know where to locate the financial file and the legal documents, and their location (but not copies) should also be shared with your primary executor/trustee.

Periodically review beneficiary designations and joint account designations to make sure that your estate plan is seamless and accomplishes your wishes when these designations are read in conjunction with your will and/or trust.

How about after the first death?

Consult with your attorney and tax advisor (they may be the same!) to see if any legal steps need to be taken, or appraisals or other valuations secured to document any change in tax basis.

Check titles to all real estate to make sure steps don’t have to be taken to eliminate the interests of the deceased spouse or clear estate tax liens.

Notify the issuers of any credit cards or the holders of any bank loans in the deceased spouse’s name of the decedent’s death, but don’t pay any of them until you have talked it over with your attorney.

Notify social security and any companies paying a pension to your spouse; the spouse may be entitled to a spousal death benefit and/or a portion of your spouse’s benefits.

Meet with your attorney to make sure that no changes need to be made to your documents.

What are some of the more complicated planning situations you’ve encountered?

Complexities often arise from second marriage situations, especially where each spouse has children from prior marriages.   These issues most commonly arise with middle-class couples.  The wealthiest couples have plenty to go around, and most often have executed prenuptial agreements which allow them to leave an inheritance to their own children, without having to worry about setting aside assets for the surviving spouse.

But middle-class couples struggle with inheritance decisions.  They typically want to provide for their spouse, but don’t want to leave their own children totally out in the cold.  And state laws designed to protect surviving spouses often limit what they can leave their own children.  Individuals don’t want their spouse to feel untrusted by appointing someone else as a trustee, yet this is often the only option available to protect the kids.

Do IRAs and 401Ks complicate matters?

Yes! This problem is compounded with couples who, as is often the case today, have the bulk of their estates in IRAs or 401ks.  Sure, they can leave these funds in trust for the spouse, but if they do so they are imposing a large tax burden on their children by requiring them to withdraw what’s left and pay the taxes within a short time after the spouse’s death.  Their children can’t stretch the funds out over a long period unless the spouse is given total control of the funds during his or her lifetime, but of course if that is done, they could change the beneficiary to exclude the children completely after the parent’s death.

Complexity is also created by planning for unmarried couples, which are more and more common today, and planning for same sex marriage couples.   We are used to relying upon spousal entitlements under state law to allow spouses access to health care providers and/or to provide spousal guarantees of minimum inheritance or a home, so special planning must be done when these entitlements are not present.

What about taxable estates?

Of course, for clients who are above the estate tax exemption, tax planning in and of itself leads to complexity.  Do we make gifts to children now to save estate taxes later?  What if we need the funds ourselves?  Do I really want to save estate taxes by gifting if this means my spouse or children will lose the benefits of the income tax basis step-up at my death?

We can really save a lot of estate taxes for clients by doing trusts for terms of years (for example 5-10 year trusts), and the longer the term the more taxes can be saved.  But if I pick a term that does not end before my client dies, it’s all for naught.  In short, while we hate to say this, the optimal planning often involves a roll of the dice to some extent.

What were some problems that early planning could have avoided?

Clients are often so very reluctant to pull the trigger on gifting for estate planning purposes.  It doesn’t matter that the gifts are in trust, so the kids may not be able to control the gifted assets, there is always that fear that they might regret the gift later.

Yet time after time, I meet with relatives of deceased clients facing a large estate tax liability that could have been totally eliminated if the decedent had only been willing to part with some of his or her money before death, rather than allowing it to appreciate and accumulate and push them into a high tax situation.

I previously mentioned the problems that can arise when beneficiary designations are not coordinated with the overall estate plan.  This would obviously have easily been avoided if the client had just made the effort to double-check the beneficiaries while doing his or her estate plan.  Software solutions are so readily available these days that many clients try to save themselves the expense of hiring an attorney; but those solutions cannot alert people to nuances that are inherent in state inheritance laws.  For example, in Florida, we often see clients trying to leave the spouse and children interests in the home, not realizing that any bequest other than outright to the spouse is totally void in Florida.   These problems could have been avoided by just spending a few bucks to do things right via a lawyer.

Long term care costs are a frequent concern. Besides insurance, what ways can you suggest to preserve family wealth and still get care for a spouse that needs it?

It’s difficult to plan for long-term care concerns because none of us knows if we or our spouse will need it or when it might be needed; that is why insurance should always be considered for preservation of wealth against this contingency.  But for one reason or another, many couples cannot afford or cannot qualify for this type insurance.  Yet nursing home costs can be so devastating to a family, easily running well over $100,000 per year in many cases, that this is not something that can be ignored.

A couple in this situation needs to think long and hard about how important it is to them to preserve an inheritance for their children or other heirs.  If it is not important, then planning may not be needed; most of us can rest assured that in a worst-case scenario where we spend our last dollar, the government program known as Medicaid will step in and pay their long term care expenses, at least unless they change the law on this.

What about so-called Medicaid Trusts to protect assets from long term care costs?

For people who want to preserve an inheritance, a second hard question needs to be asked: how much am I willing to give up control of my assets now, to assure that I won’t have to spend everything later.

I’ve had clients that are willing to give up everything to their children, knowing that their children will safeguard the money and spend it on them if needed. For them, if they stay healthy for the government “lookback” period (five years in most cases), they can rely upon Medicaid being available and know that all their assets will pass to their heirs if they give them to an irrevocable Medicaid trust.  The transfers don’t have to be total; there are “Medicaid trusts” that allow for some retained benefit, but these are very technical and have to be carefully coordinated through an expert in the area.

What’s an average situation?

Most couples are in the middle, however; they want to preserve some of their wealth for their heirs, while not giving up control of their funds.  It is for these couples that the legal specialty called “Medicaid planning” has become popular.

It involves positioning their assets to take advantage of all exemptions available under the Medicaid program, and in such investment vehicles as would allow them to readily shift assets to or in trust for the spouse that does not require long term care (playing the odds that it will not be needed by both).

This planning needs to be coordinated with their estate planning to ensure that, should the healthy spouse die first, those assets don’t end up going back to the sick spouse in a manner that would result in Medicaid disqualification.

The frequent goal, of course, is to have Medicaid pay for long term care, and protect the assets for the healthy spouse and the rest of the family. While this is sometimes possible, the area is fraught with peril.

Could you expand a bit on this “Medicaid planning” technique?

There is no “typical” plan, and this does vary substantially from state to state, but I can give an example of what can be done.

In Florida we often see elderly couples, with one of the spouses being diagnosed with dementia.  Their assets typically consist of a house and some amounts of savings.  The house is exempt from “Medicaid spenddown” so we often will take some savings and use it to pay down the house mortgage.

The balance of the savings we transfer to the spouse who is unlikely to require nursing home care (the “community spouse”).  Sometimes it is necessary to convert some of the savings to an annuity that is not considered an asset for Medicaid purposes, and it is also sometimes necessary to work with Medicaid to divert some of the sick spouse’s income to the community spouse.

But usually, with some combination of these steps, we can ensure that the spouse with dementia can receive institutional care under the Medicaid program, without depleting any of the assets available to the spouse not needing Medicaid.

In some situations, so-called Medicaid Trusts are indicated. Since such trusts are irrevocable, must be funded at least five years before Medicaid is needed, and don’t allow either spouse to be a trustee, very careful planning is needed if these are considered. You can skillfully protect such assets in the right fact pattern, but note you must give up the assets and all control over them to get such a result. This can sometimes backfire in a big way.

Any parting pearls?

I often see clients who desperately need some type of planning, but have postponed going to an estate planning team until the options have become very limited.   By the time they see me, their “departure time” may be too near to allow us to use tax-saving mechanisms that must be instituted in advance, one of the spouses may have passed away eliminating other opportunities or dementia may be setting in creating other issues which inhibit the planning process.   Most planners and lawyers in my field offer an introductory consultation at little or no charge.   Ask around, get some recommendations, and go ahead and make an appointment.  If you’re not comfortable with that lawyer, see some more until you find one that instills confidence and provides you with a good comfort level.  But don’t postpone that meeting any longer; it can be extremely important both for you and for those that come after you.

And consider making all your advisors part of that meeting. CPA, insurance agent, financial planner, investment advisor, whomever you rely on for advice. Often, they can help coordinate information and planning to get a better result. Most won’t charge for this, either.

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