Things to Consider After the Passing of a Parent
When it comes to losing a parent, sometimes there’s a lot of ambiguity of what to do next. Everyone’s situation is going to be unique. Navigating death claims is not the most pleasant topic but it’s something that you may have to handle in the future. Included are some touchpoints that should be helpful if you find yourself in this situation.
Determine Cash Flow for the Surviving Spouse
In a married couple situation, it’s important to determine what the cash flow will look like for the surviving spouse. Changes to cash flow can impact one’s lifestyle and be a factor in whether the surviving spouse will need to move or downsize. Remember, every dollar matters.
Changes to Social Security Income
One thing to be mindful, if you are married, the surviving spouse will lose a Social Security payment. With a married couple you each have a social security payment. When one passes, the surviving spouse will take the higher benefit of the two. That could be a large adjustment to one’s income, if not a surprise.
Be Aware of Survivor Benefits
If the parent who passed away had a pension plan, check with the former employer about survivor benefits. You want to verify the percentage of retirement income that will still come from the pension upon death to the surviving spouse. There may also be a life insurance benefit or other supplemental coverage with healthcare. Sometimes these policies aren’t very large, but they do matter. That may be a source of financial support to help with the adjustment on cash flows.
Asset Transfers
As a child or beneficiary, you can help a parent with asset transfers or retitling accounts. I would advise working with a financial planner in conjunction with the bank or other custodians. There are a lot of rules on how asset transfers work and you don’t want to trigger any taxes or penalties in the process of helping a loved one.
Avoid Tax Penalties
In the situation of a married couple, if the parent who passed had a 401(k) or a traditional IRA, the surviving spouse can exercise what’s called spousal continuance. For example, that remaining IRA becomes a financial asset for the surviving spouse.
If you’re not the surviving spouse, there is a different set of rules enacted over the past few years. If you inherit an IRA for example, you are now on the hook for required minimum distributions. You must deplete that account (with few exceptions) within a ten-year period to avoid tax penalties.
The Impact on Your Estate Plans
If you listed a parent as a power of attorney, a trustee, or an executor and they pass, you will have to revisit your estate plans. If they were listed as a beneficiary on any of your accounts, you would want to update that information sooner rather than later. If you don’t list someone as a legacy to receive those assets, you run the risk of those assets going to the state or federal government.
Work with a Financial Planner
If you’re in a situation where you think that you could lose a parent due to health or other issues, it would be wise to talk with someone professionally who could help you navigate these things.
At Financial Dynamics, we offer a suite of financial and lifestyle management services that can be customized for you or a parent. Our advisory team is committed to helping you make informed decisions about your money so you can move closer to achieving your financial and lifestyle goals.
Advisory services offered through J.W. Cole Advisors, Inc. (“JWCA”). Financial Dynamics & Associates, Inc. and JWCA are unaffiliated entities.
