Too often we go no further than “sweetheart wills,” leaving everything to our spouse and, if our spouse does not survive us, our children. We need to think more about what our spouse will need and when. Caring for your spouse financially after your death requires planning now.
Your spouse will immediately need cash to pay the expenses of the final illness and funeral, to live on and to settle the estate.
Today the average funeral costs around $15,000, which may be why half of Americans try to cut costs with a cremation ($4-6,000) or a “green burial” like our ancestors. Organ and body donations can cut the costs further while advancing medical research – though even the smartest brain does not qualify for a tax deduction!
While Texas courts will set aside a budget of a year’s living expenses for the surviving spouse and dependent children, your spouse needs money to live on before the court hearing.
Many couples manage this by holding their bank accounts joint with right of survivorship (JTROS). 100% of the funds are immediately available to the surviving spouse. They do not pass under the Will. No death certificate needs to be presented.
A death certificate does need to be presented to receive funds held “pay on death” (POD), brokerage accounts “transfer on death” (TOD), life insurance policies naming a beneficiary, and retirement accounts naming a beneficiary. While these also pass outside the Will, there can be a delay in receiving them.
These must be handled carefully. The required minimum distribution (RMD) for the year in which you die must be taken. Since many people take their RMD in December, this is easily overlooked, resulting in a 50% penalty. If your spouse is the beneficiary of your IRA, it may be rolled over into your spouse’s IRA or treated as an inherited IRA. Congress is considering changing the special rules governing inherited retirement accounts. Your spouse or other beneficiary should consult with an experienced probate attorney or CPA to make sure that the retirement account is handled in the most beneficial way possible.
Your spouse’s living expenses will change – and may go up. Your spouse may need to hire people to give the support you were providing. Your spouse may want to move to be closer to the children, to a home which requires less work or to independent or assisted living facility. An accountant who regularly works with retired people can help create spreadsheets showing how different choices (and changes in health) would work.
Organize, organize, organize
It is often only after someone dies that we realize how important this is. Grief affects our ability to remember and to focus. A file box or home safe with important papers and a calendar showing what is due when can be a godsend. But don’t keep everything! One client was left the task of going through file cabinets of payrolls, contracts, receipts and tax returns for a small business – dating from the 1950s!
Estate Planning attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is active in the Texas and Austin Bar Associations. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.
She assists families of people with special needs, people planning for the retirement years and people administering estates.