Widowhood:Be Prepared to Carry On

Chapter 11

Widowhood

Despite the trauma caused by the death of a spouse, life goes on. And often it’s life’s little details that can cause the biggest hassles and trip you up financially.

According to the Census Bureau, women in their 50’s and older are four times more likely to be widowed than men in the same age group.

Money Smart Women

If you follow the advise of the book, you won’t have to worry about any major financial problems during those first psychologically and emotionally devastating months because plans you have set in place will kick in automatically.

Who to Contact

Your husband’s Employer– Unpaid bonuses– Life insurance– Retirement benefits

The Social Security Administration and the Department of Veterans Affairs– You should be eligible for SS Benefits if your

husband received them– If your husband was in the military you may be

entitled to funeral and burial benefits

Who to Contact

The issuer of your husband’s life insurance policy– Life insurance benefits are tax-free, and

eventually you’ll have to make some decisions about what you want to do with that money- but for now, that decision can wait.

Make Settlement Easy

Probate is the procedure by which state courts validate a will’s authenticity, clearing the way for the executor to collect and pay debts, pay taxes, sell property, distribute funds, and carry out other necessary tasks involved with settling an estate the process can be slow and expensive, and probate fees can absorb as much as 10% of the estate’s assets.

What is an executor?

Make Settlement Easy Have a Will Roughly 50 percent of Americans die without

a will --- this is known as dying intestate…– In the absence of a will, there’s potential for all

kinds of mischief. There may be disagreements about how to divide property your husband held in his own name. Creditors might show up with claims you were unaware of. A hostile relative might be able to acquire a share of the estate, or a relative who is already well-fixed might take legal precedence over needier kin. And you might find yourself depleting the estate’s assets by fighting costly court battles.

Make Settlement Easy

You will eventually have to notify dozens of institutions that your spouse has dealt with, each of these institutions may request a death certificate; make sure that you get a dozen or so from the funeral director to have on hand if you need them.

Sit Tight with Your Money and Say No

Because of insurance settlements or other inheritances, new widows often end up with more money than they’ve ever had to deal with. You may be tempted to spend it on a cruise or give it to the kids, and you’ll be besieged by people who want to sell you something.

Your best response: SAY NO and GO BACK TO THE DRAWING BOARD!!

Take Your Time

Don’t make any major financial decisions for at least 6 months if not 1 year.

Your insurer can hold it in an interest-bearing account until you want it or you can keep the money in a very liquid and safe investment that five you easy access if you need it.

Manage Carefully

When you get the life insurance benefits, be sure to set aside enough to get yourself through the first year, including any major expenditures you can anticipate will be necessary, before making any long-term investment decisions.

Take a Lump Sum or Invest in an Annuity?

Annuity– When you buy and annuity, you pay

money to an insurance company and receive in return a guaranteed income, starting right now or later on. The income can continue for a specified period of time or for as long as you live. The size of the payments will vary accordingly.

Take a Lump Sum or Invest in an Annuity?

Annuity– Have a tax advantage

No federal or state income taxes are owed on any interest or investment earnings until the money is withdrawn

– You’ll usually pay a 10% penalty tax on amounts you withdraw or borrow from an annuity before age 59.5.

Revisit Your Investment Plan Consider your goals

– Short-term, medium-term, or long-term Retired with no dependents

– A guaranteed lifetime income may give you the security you crave

Young widow with small children– You may need to invest all or part of your

insurance proceeds so that the money grows enough to cover the cost of college for the kids

Get Support from the Widow’s Safety Net

Social Security– You can start collecting widow’s benefits starting

at age 60, or age 50 if you’re disabled– If over 60 you can remarry and still collect

benefits on your deceased husband’s record. Choose the greatest of the three

– Your deceased husband’s full benefits – 50% of your new spouse’s benefit– You benefit based on your own work history– Note: for younger generations, don’t count on Social

Security – or at the very least --- count on minimilized benefits.

Get Support from the Widow’s Safety Net

Pensions– Survivor’s Benefits

Electing a survivor benefit may reduce the pension you and your husband receive during his life, but it ensures that you continue to get payments after his death

If you choose– Joint-and-survivor 100%

The payments he gets over his lifetime will continue at the same level for you after he dies

This is the best option for a surviving widow– Joint-and-survivor 50%

Payments will be somewhat higher during his lifetime but will cut in half after he dies

Get Support from the Widow’s Safety Net

IRAs– Traditional

Taxable to you in your top tax bracket

– RothTax-Free

Won’t you be glad you invested in an IRA if you end up in this situation??

Deal with Death and Taxes Insurance Proceeds

– Proceeds you receive from your husband’s insurance policy are not subject to federal income tax

Estate Tax– Unlimited Marital Deduction

Your husband can leave any amount to you, his wife, without incurring the federal estate tax. Why? Because it passes out of probate if your spouse is a US citizen. Check with you lawyer to determine if you have any special conditions that would not allow for your assets to pass outside of probate.

He can also leave a total of $2 million to other beneficiaries without incurring the estate tax

Deal with Death and Taxes

Income Tax– The chore of filing your husband’s final income

tax return also falls to the executor of the estate or to you. You’ll have to report any income your husband earned between the beginning of the year and the date of his death. You will have to file a final tax return. Yes, the IRS requires that you file one FINAL return.

Medical Expenses– You can deduct medical expenses if they exceed

7.5% of your adjusted gross income

Deal with Death and Taxes

Capital Gains– When you inherit stock, mutual fund

shares, or other assets, the capital-gains tax on any appreciation in the value of your husband’s share of the property prior to his death is forgiven. Assets experience a “stepped up” cost basis.

Capital Gain Tax The Following Rules Apply:

– If your husband held the asset in his own name, you can sell it immediately and not have to pay tax on the capital gain

– If you owned the property jointly, you can sell it and there will be no tax on his half of the profit.

– If you hang on to the property and sell it in the future, the capital gains tax on your husband’s share of the asset will be figured only on appreciation since he died and you inherited the property. This is one area that is beneficial. It pays to stay alive though – think of the time value of money.

Take Care of Yourself Widowhood/widowerhood is one of

those critical life events that require major reassessment of your estate plan.

For starters, you must redo your own will and change the beneficiaries of your insurance policies and retirement plans. Go back to the drawing board and re-think everything in your own estate plan.

Don’t Panic

Save for your own retirement

Don’t leave estate planning to your husband

Get your share of other benefits

Don’t Stop Now! Be sure to get plenty of copies of your

husband’s death certificate when you are making his funeral arrangements

Ask a family member or friend to make some of the necessary business calls

Don’t rush to invest insurance proceeds or any other payout. Take your time and DON’T PANIC. If you have been a Money Smart Woman, you should be confident in your status.

Don’t Stop Now! File a joint tax return for the year in which

your husband died, use any balance left in a flexible spending account, and take advantage of any medical tax deductions you may be entitled to. Another good case for staying involved throughout your life in the financial matters of your household.

Revise your own will and related documents, such as power of attorney, advance directive for health care, etc.

Don’t overlook any resources that are available to you such as organizations like the Women’s Philanthropy Board.