The loss of a spouse is one of the most traumatic events a human
being can face in their lifetime. The grief and loneliness combined with
the multiplicity of financial decisions that must be made immediately
can be overwhelming. Additionally, a widow or widower will now be making
financial choices on their own when perhaps the partner they lost was
the lead decision maker in this area. Below are seven steps which will
help with the short-term decisions that need to be made, as well as a
brief discussion of the type of ongoing financial planning that will be
helpful over the longer term.
Step 1: Obtain at least 15 copies of the death certificate.
These will be required to prove identity with the various government
and financial institutions. Obtain several copies of the deceased’s
birth certificate and your marriage certificate as they are also
likely to be needed.
Step 2: Report the death to the Social Security
Administration and the Veteran’s Administration (if applicable). One
useful tool on this topic is the "Guide to Social Security and
Medicare," published annually by Mercer Human Resource Consulting,
Inc.
Step 3: Notify all insurance companies involved and file
claims as soon as possible. This includes not just life insurance
companies, but also any insurance companies where disability,
hospitalization, travel, long term care, or property and casualty
coverage was held. These types of policies often have a death
benefit associated with them as well.
Step 4: Notify your spouses’ employer to file for benefits
which may include pension, retirement plan rollover (such as 401k),
and insurance coverages. The funeral home can usually help with
these first four tasks. Use their resources. They are generally very
helpful in this regard.
Step 5: Open a bank account in your own name if you do not
have one already. This will be the start of establishing your own
credit and simplifying bookkeeping records when it comes time to
file an income tax return.
Step 6: Transfer jointly held securities or other assets into
survivor’s name. Also transfer IRA and Keogh accounts from the
deceased to the survivor.
Step 7: Make an appointment to see an attorney, accountant
and financial planner. It is now time to begin planning your
financial life moving forward.
If you or your spouse has never prepared a written financial plan,
now is the opportune time to do so. A written plan will allow an
analysis of your financial situation from an objective point of view. It
is still a very emotional time and the numbers of the plan will "speak"
and help you make prudent decisions in regard to cash flow, taxes,
investments and your estate. This eliminates any guessing or assumptions
that could lead to problems now or down the road.
Two important components of the plan to work out first are the cash
flow analysis and an appropriate allocation of financial resources.
The cash flow analysis will organize the sources of income (pension,
investments, Social Security) and combine this information with certain
assumptions. These assumptions could include an inflation rate,
portfolio earnings rate, your budget after taxes in present day dollars,
and life expectancy. Once these numbers are analyzed and projections are
made, a percentage of cash flow covered can be determined. Obviously the
number we are looking for is 100% or better. A 100% means you have
enough sources of cash flow to maintain your lifestyle until your death.
Things change, of course, and that is why an annual review of your
numbers will keep you on track. Each year you can factor in what has
happened to your plan numerically (inflation, portfolio return, etc.)
and reset for the next year. This is a critical tool to use to increase
your chances of long-term financial success.
Once the cash flow analysis is complete, it will lead you to the
proper allocation of your portfolio based on your risk tolerance and the
amount of return you need to maintain your desired budget. This tool is
known as an Investment Policy Statement and it gives specific
percentages and investment vehicles to use in your plan.
The creation and application of these financial planning tools will
help ensure your long-term financial success.
