By Tricia Lepofsky, ChFC®
Discussing the possibility of losing a loved one is undoubtedly challenging, and facing widowhood can be an emotional rollercoaster. While it’s impossible to fully prepare for the loss of a life partner, taking proactive steps to organize your finances can provide relief during a difficult time. Addressing important questions in advance can help alleviate the financial burden so you can grieve without added stress.
At KFA Private Wealth Group, we understand the importance of planning for the unexpected, and we are here to help you navigate the financial aspects of widowhood. Be prepared for whatever life brings as you pursue a stable financial future.
Do You Have a Trust in Place?
If you and your spouse do not have a trust, consider drawing one up in order to control where your assets go now, and in the future. A trust ensures assets are protected and disbursed to the right heirs at the right time. You can have both a will and a trust, but while a will takes effect after one’s passing, a trust can be used both during life and after one’s passing. Be sure to ask your advisor about state laws when it comes to the differences between wills and trusts.
Without a trust, it can take longer to settle an estate, and the details about how assets pass can get messy. A trust also helps give you control from beyond the grave regarding how and when your money is distributed. If you do have a trust, make sure it’s up to date by working with a qualified estate attorney who can put all the legalities in place.
What Benefits Are Available to You?
Understand your benefits in preparing for the possibility of widowhood. Things like Social Security, life insurance, pensions, and annuities should be assessed ahead of time so that you’re not struggling to make difficult financial decisions immediately after loss.
If your spouse is still working, there may be employer-sponsored benefits available as well. Work together with your loved one to make a list of all the benefits either of you will receive in the event of widowhood as well as the information needed to access these resources. As difficult as it may be, talking about these benefits ahead of time can help you both feel prepared if widowhood were to happen.
Do You Have Access to All Financial Account Information?
One of the hardest parts of widowhood is moving forward without the support of your spouse. Maybe they were the one who handled all of the day-to-day financial matters and now you are stepping into this role for the first time in your life.
The best way to prepare for this possibility is to make sure both spouses have access to important financial account information including checking and savings accounts, retirement plans, and other investments. At a minimum, both spouses should have access to account numbers and log-in information. Settling an estate may require a birth certificate and/or marriage certificate (even if you are divorced), so it’s important to keep these in a safe and accessible location.
Additionally, understand how these accounts are titled (joint or individual), as well as who is listed as the beneficiary. Having joint ownership on all accounts, or listing each other as beneficiaries, can help the assets transfer smoothly by avoiding probate. This is a crucial aspect of estate planning.
What Does Your Spending Plan Look Like?
Widowhood will be challenging. Designing a detailed spending plan now can help ease the transition by mitigating the stress of day-to-day financial decisions. Start by creating a current budget with your spouse, if you don’t have one already. Together, you can discuss the types of expenses that will either be added or removed from the budget if one person passes. It may seem strange in the moment, but it can be an incredible aid when planning for the future.
Pay special attention to debts like mortgage payments, monthly utilities, car payments, credit card debt, and other loans. Understanding how these debts will be managed in the event of widowhood is crucial to creating a sound financial future for the surviving spouse. The last thing either spouse wants to do is leave behind debt that their loved ones can’t manage. A spending plan can help lessen this burden and provide comfort to both spouses knowing that their partner will be financially stable on their own.
Are You Aware of the “Widow’s Penalty”?
One factor that can impact your financial future is what’s called the “widow’s penalty.” The term “widow’s penalty” refers to the situation where a surviving spouse ends up paying higher taxes on a potentially reduced income following the death of their partner. There are a number of reasons for this scenario that can become a frustrating and expensive lesson for the surviving spouse.
The first scenario is when you go from married filing jointly to filing single, you lose 50% of the standard deduction. This means that more of your income is counted in your tax bill, so you’ll have to pay more than you’re used to paying.
Secondly, if you have not done any Roth conversions prior to this point, then the surviving spouse will have to take required minimum distributions (RMDs) from the combined IRAs/401(k)s. Even if the RMD amount is the same as before, the tax bill will be higher because of the different filing status.
In addition to that, the different filing status can also affect IRMAA (Income-Related Monthly Adjustment Amount). IRMAA is a surcharge on Medicare Parts B and D. Simply put, if your Modified Adjusted Gross Income (MAGI) is above a certain threshold, you will have to pay extra on your premiums for Parts B and D, and that surcharge goes up as your income goes up. As a married couple, the threshold is $194,000, but if filing single, the threshold is only $97,000. As you can see, going from a married filing status to single filing status, but keeping the same income, will increase your chances of having to pay that Medicare surcharge.
Not only can there be added financial responsibilities and burden on the surviving spouse, there also might be the chance of paying a higher tax rate to boot.
Do You Have a Trusted Advisor?
Having a strong support system can carry you through widowhood and give you the strength to move forward. Part of that support system should be a trusted financial professional.
Whether you are working with a financial advisor already, or you are looking to hire one, take your time getting to know them and make sure you like working together.
If there is one spouse who tends to handle all financial matters, make it a point to introduce the other spouse to the financial team. Widowhood is a vulnerable time, and it’s vital that both spouses feel comfortable reaching out for help with important financial matters. If one or both spouses don’t trust the advisor, it may be necessary to reevaluate the relationship.
Your well-being is of the utmost importance during this process, so don’t be afraid to interview several financial professionals before choosing the one you trust the most.
Don’t Go At it Alone
Facing the challenges of unexpected life events can be overwhelming, but being prepared is the key to financial stability. At KFA Private Wealth Group, we strive to provide clarity and confidence throughout all stages of life. If you’re considering how to navigate the complexities of widowhood, our team is here to guide you and your spouse through these difficult decisions. Take the first step in stabilizing your financial future by reaching out to us today. Email firstname.lastname@example.org or call 571-327-2222 to schedule an appointment.
Tricia Lepofsky, ChFC®, is a financial advisor at KFA Private Wealth Group, a registered independent advisory firm founded on the premise of providing conflict-free financial and investment advice. With a background in music education and opera, Tricia transitioned to the financial industry to help people understand what their money can do and feel more in control as they work toward their goals. Tricia is known for her attention to detail and her dedication to her clients and their unique financial challenges. She is passionate about building relationships with her clients and partnering with them as they walk through life’s milestones, keeping them accountable and motivated to pursue their goals. While she serves a diverse range of clients, Tricia uses her background of 18 years in the Washington National Opera and Washington Concert Opera to specialize in serving hardworking, intelligent individuals who have a connection to the arts. In her spare time, Tricia loves to travel with her husband, Mark, hike trails along the Potomac River or in the Blue Ridge Mountains, and support former colleagues by attending live performances of operas and musicals. To learn more about Tricia, connect with her on LinkedIn.