We read about long-married couples who die in quick succession, but what happens to most couples is that one is left behind for many years. What happens to the surviving spouse?
Given the sadness of the topic, it’s no surprise that most people don’t prepare for the loss of a spouse, reports a study from Merrill Lynch and Age Wave that was covered in USA Today’s recent article, “Before the death of a spouse, here's how to prepare a financial plan for living alone.” Slightly more than half of the widows surveyed, reported that they did not plan for how the surviving spouse would manage and more than three-quarters of the married retirees questioned said that frankly, they would not be prepared for the financial change when their spouse died. That’s a real problem, given that the death of a spouse leaves most households with less than half of their prior income.
Here’s what couples should do to better prepare for the loss of a spouse.
There are about 20 million widows in the U.S., and 1.4 million new widows annually, according to the study. Nevertheless, most married couples don’t like discussing or planning for death. Nonetheless, it’s best to address this difficult subject head-on because of the potentially dire consequences.
If you need assistance, speak with a qualified elder law attorney. A new widow also should put together a comprehensive financial evaluation and plan with an analysis of potential cash flow issues that emerge after the death of a spouse.
An experienced and knowledgeable attorney can conduct a thorough inventory of the available financial resources and help integrate Social Security, Medicare, Medicaid, veteran’s benefits, and other programs to maximize the benefits you will receive. An experienced estate planning attorney can also then determine, if any asset protection/wealth preservation strategies are necessary to qualify for and preserve government benefits. For instance, for some clients they may want to make the portability election which allows them to take advantage of their own and their spouse's life time exemption amount for Federal Estate Tax purposes. This election must be made in the proper time period to allow for portability to occur.
Ask yourself if you have enough life insurance because it’s important to get the necessary amount of insurance, in case of an unexpected or premature death. Calculate how much to purchase using any number of methods—human life, financial needs, and capital retention.
A widow needs planning, not products. Estate planning attorneys can help maintain the focus on planning and protect widows financially. For instance, the current way in which you hold title to real property can affect how much of the property receives a basis step up at the first spouses passing. If you hold title to a rental property as joint tenants with right of survivorship in Arizona, at the death of the first spouse, the survivor will only get a step up in basis on half of the value of the property. If however, you own the rental property as community property, then the surviving spouse receives a step up in basis on the full value of the property, and can avoid costly long-term capital gains taxes as a result if they decide to sell the property.
Without a plan in place, it’s less likely that you’ll be able to maintain your independence and lifestyle. Contact the Soto Law Firm today to discuss the options available to you and your spouse that will protect both of you at every stage of your lives.
Reference: USA Today (September 26, 2018) “Before the death of a spouse, here's how to prepare a financial plan for living alone”.