Episode 33: Things to Consider After the Passing of a Parent

Isaac Wright: Hey, thank you for joining us today on Wright Money Tips. The topic of the conversation today is not going to be the most pleasant, but it’s something we’re all going to have to face at one point in time or another. And that is the topic of losing a parent, mother, father. Unfortunately, over 20 some years I’ve had many death claims and have had many situations where we’ve had to help.
Really, kids determine what the next steps are. But when it comes to losing a parent, sometimes there’s a lot of ambiguity about what to do next. And so, we’re going to talk about that today. Before I introduce our guest of the day, I do want you to know that if you’re not watching this show, if you’re just listening, I’m holding up a checklist that we’ve created that you can ask for, that basically are issues you should consider when losing a parent, and we’re going to touch on some of these today.
With that in mind, let me introduce to you our guest, Kevin Buenvenida. Kevin’s one of our lead advisors here at Financial Dynamics. Kevin, glad to have you today.
Kevin Buenvenida: Yeah, thank you for having me back on.
Isaac Wright: Obviously today is going to be a little bit of a tougher conversation, very personal. Everybody’s situation is going to be very unique. Maybe we’ll touch on a few high-level points here that can help focus some objectives during a time where it might be hard to be objective. And I think that today we’ll be able to break this down and by no means that we’re going to be able to cover all the steps.
On that note, and I do want to make this clear to all of you today, if you’ve lost a parent, some of this stuff may ring true with you. If you’re in a situation where you think that you could lose a parent due to health and other issues, know that we’re here to help. And I hope these touchpoints today are helpful overall.
So, Kevin, let’s go and jump in. Number one thing is this if you lose a parent, number one thing is cash flow issues and whether or not your parents were married, right?
Kevin Buenvenida: Right. So, this was probably going to be one of the more unique situations or personal situations depending on whether or not your parents were both married or, if it was a single parent at the time of passing. Really, it’s driving down to what does money look like immediately for the surviving spouse in a married couple situation.
And there are a couple of factors that we have to look at. What forms of retirement income were coming in, assuming that both your parents were retired at the time, most situations it can be Social Security. And there we have to be mindful of the impact of survivorship benefits and maybe what the dollars look like coming in from both parents while they’re alive and who gets what on the back end as a survivor benefit.
One thing to be very, very mindful of when you think about cash flows and Social Security is that more than likely you’re going to lose one of those Social Security payments. So, with a married couple, you get two. When one passes, the remaining spouse will take the higher benefit of the two. So that’s probably a large adjustment, if not a surprise for a lot of surviving spouses is that they lose the Social Security paycheck on a given month.
Isaac Wright: Sure. Well, and I think probably in conjunction with that, as I’m listening to you, so you’re going to lose a Social Security check. Also if it’s a single parent situation, making sure you reach out to Social Security and alert them overall of the situation. Same goes with like work pensions.
As I’m sitting here talking to you, so if you have a pension plan, if the parent that passed away had a pension, obviously being mindful of there’s any survivor benefits for the spouse. But again, the immediate concern here from a cash flow perspective is trying to organize that income sooner than later. And you want to be somewhat quick with that because you want to make sure that the surviving spouse, especially if you have parents that are married, the surviving spouse understands what that income’s going to look like from a cashflow perspective.
Kevin Buenvenida: Absolutely. And on that note, for any working couples or a spouse, a deceased spouse that was working. Check with the employer. There may be some sort of life insurance benefit or an accidental death of disability policy that may be available for the surviving spouse. And that may help provide financial support in between the adjustment on cash flows.
Isaac Wright: And you know, I think when you say that, and I just want to add this, so life insurance, we have found over the years, two or three moments where it wasn’t a married couple, but the last parent if you will passed away. That life insurance was a benefit that they never even looked into through the employer. And you know, sometimes these policies aren’t very large, but they do matter.
Kevin Buenvenida: Yes, absolutely. Every dollar matters.
Isaac Wright: Yeah, I was going to say, if you didn’t catch the top of the program here, basically we do have a checklist you can request by just reaching out to us. Happy to send you a full checklist of everything we’ve talked about when you are preparing and or unfortunately having to deal with the loss of a parent.
Kevin Buenvenida: But maybe some of the other things as a child or a beneficiary you can help either parent or the estate of your parent work throughs, asset transfers. That’s probably going to be another immediate effect of something you’re going to need to adjust. Something as straightforward as a bank account or maybe you have a taxable brokerage account that the account registration as a joint account. That situation, you’re probably going to have to work with your parent, or surviving parent, and/or the bank or the estate to transfer the ownership over.
Isaac Wright: Gotcha.
Kevin Buenvenida: That is going to be something where, again, it’s going to meet an immediate impact. You want to make sure that the surviving spouse or parent has access to the cash that they need. If it’s something straightforward like an individual brokerage account, for example, owned by the deceased spouse, and it has the primary beneficiary listed as the living spouse, make sure you transfer that over so that they also have access to that. And by the way, maybe we jump into taxes here for a quick moment. That should receive a step up in basis. So those assets actually get an increase in their cost basis value, which is a good thing in a situation like this.
Isaac Wright: So, you know, when we talk, and this is probably good that you kind of slowed down and talked about asset transfer. Because a lot of times, again, whether your parents were married or was a single parent situation, how you inherit the money. So, if you are the child especially, how you inherit that money is so critical in understanding how to do that properly especially when it comes to tax deferred retirement accounts. Doing things incorrectly can trigger a large amount of tax. Also too, just keep in mind as well, like you said earlier, life insurance and other assets, maybe, even a home. When you say step up in basis, making sure that if the couple is married, your parents are married, that the surviving spouse may still qualify for the step up in basis on the sale of that home.
So, a lot of times and I’ll share the story. A lot of times if a loss of a parent occurs, the surviving spouse sometimes wants to move or sometimes has to move or downsize. There are some benefits potentially there on the tax front that they can take advantage of from basically having that step up in basis.
These are just all what I call high touch points about what happens when you lose a parent. But these are all good for you to kind of understand and things that we look at. And again, we’ve created a checklist. You’re welcome to reach out and ask for this. And it’s a great resource for you to deal with some of these questions.
So, Kevin, if we’re talking about asset transfers, we’ve talked about cash flows. I know we just touched briefly on taxes. I’ll let you guide me, man. Where do you want to go next?
Kevin Buenvenida: So, I think taxes will probably be a good topic for us to talk about. That’s another area where if you do or miss the proper steps and procedures, Uncle Sam comes after you, and that’s never a good thing.
So, in the situation for a surviving spouse, married couple. If one passes and they had a 401(k) or a traditional IRA, the surviving spouse can exercise what’s called spousal continuance. Basically, that remaining IRA, we’ll just use as the example today, becomes the surviving spouses. So, it becomes a financial asset for them.
But if you’re not a surviving spouse, you’re not an eligible designated beneficiary based on the new laws that were passed just a couple of years. You inherit an IRA as an example, you are now on the hook for required minimum distributions or to deplete that account within a 10-year basis. If you don’t do that, it’s a pretty bad penalty in the eyes of Uncle Sam. You know, by the way, you pay taxes.
The other impact about transferring inherited accounts like an IRA is that if the deceased parent was taking a required minimum distribution and they had not yet satisfied it for the year that they passed, that has to come out of the account. So, if you don’t take out the required minimum distribution because it was an afterthought, there are penalties associated with it, and that’s never a good thing.
Isaac Wright: No, these are all good things. The problem is the government doesn’t make it easy to keep up with all the rules and regulations. Makes us have good job security. Does not necessarily help the lay person out there and on top of all the financial stuff, just the emotional hit of losing a parent.
You know, I lost my father about 10 years ago. So, going through a little bit of this as we’re talking, I remember some of this. And again, a lot of the rules unfortunately have been made a little bit more complicated. So, you know, from again, taxes, making sure that if it’s a surviving spouse situation, that their lifestyle and their income cash flow needs are expeditiously put into place, if you will. We talked a little bit about insurance. Anything else you want to say before we wrap up?
Kevin Buenvenida: You know, when we think about this type of transition, it’s never quick. In most situations, it’s a lengthy process that may extend more than a couple of years in some situations.
And a couple of things to be mindful of, the impact of losing a parent may also directly impact your estate planning as well. So, if you listed your parent as a power of attorney, or maybe as a trustee or executor and they pass, that would be an opportunity for you to revisit your own estate plans.
In addition, if they were listed as beneficiary in any of your accounts, take the opportunity to review who you have as a beneficiary. It would be a shame for something to happen to you, and unfortunately, there isn’t somebody as a legacy to receive those assets and it goes to the state or the federal government.
Isaac Wright: Well, all good points today, Kevin. I know we could probably continue this conversation for quite a long time. Again, we built a nice checklist of items for people to consider.
I want to say thank you to everyone that’s taking the time to listen or watch our podcast. If you go to WrightMoneyTips.com, that’ll take you right to all of our episodes that we’ve had, which are now 30 some deep. So, it’s amazing. I remember when we started this off, Kevin, and we’ve had a lot of good momentum with this whole show.
So, if you have any questions, again, reach out to us. Happy to send you a copy of our checklist. Again, all you have to do is email us, reach out to us. If you go to WrightMoneyTips.com, you’ll see all the details there. And in the meantime, or until next time, we’ll talk soon. Kevin, thanks for joining us.
Kevin Buenvenida: Thank you.
Isaac Wright: Have a good one.
If you have any concerns or questions, you can visit WrightMoneyTips.com to request some time on our calendar or please subscribe when visiting WrightMoneyTips.com to receive notifications on new episodes, our newsletter, and even upcoming events.
Advisory services offered through J.W. Cole Advisors, Inc. (“JWCA”). Financial Dynamics & Associates, Inc. and JWCA are unaffiliated entities.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.