Tax Strategies for Individuals

The death of a spouse or loved one is a difficult time. Yet, during this period, important financial arrangements must be made. This Financial Guide will help you handle the many financial details which must be attended to on the death of a loved one.

Coping with the death of a spouse is difficult at best, but unfortunately, many decisions need to be made and actions must be taken in the first few months after the death occurs. This Financial Guide provides information that will help guide you through this difficult time.

Collecting the Papers

The first step is to collect the necessary paperwork so that you can finalize the estate and file for any benefits that you and your children are entitled to.

The Death Certificate

Many of the offices or agencies you contact will require you to provide a copy of the death certificate. You can buy certified copies of the death certificate through your funeral director or directly from the county health department for a small fee, typically a few dollars per certificate. It is worth paying the money for the certified copies, however, since many companies require it.

Tip: Whether you think you need them or not, try to get at least 10 certified copies of the death certificate.

Insurance Policies

You will probably find copies of life, health, home mortgage, accident, and other insurance policies in a safe deposit box or with your spouse's personal belongings. Any or all of these insurance policies could be sources of possible benefits to you and your children.

Social Security Numbers

You'll need the Social Security numbers of your spouse and any dependent children.

Tip: Your spouse's Social Security number can be found on the death certificate.

Military Discharge Papers

You will need a copy of a certificate of honorable (or other than dishonorable) discharge if your spouse was a veteran. If you cannot find a copy of the discharge, write to:

The Department of Defense
National Personnel Record Center
9700 Page Avenue
St. Louis, MO 63138
(314) 801-0800
website: www.archives.gov

Marriage Certificate

If you are going to apply for benefits based on your marital relationship, you will need copies of your marriage certificate. Copies are available at the office of the County Clerk where the marriage license was issued.

Children's Birth Certificates

You will need copies of birth certificates for dependent children. Copies are available at either the state or county public health offices where the child was born.

The Will

You will need a copy of the will. Your spouse's lawyer may have the will or it may be in a safe, a safe deposit box, or with your spouse's personal belongings.

List of Assets

A complete list of all of your spouse's property, including real estate, stocks, bonds, savings accounts, and personal property will be needed. Land titles, stocks certificates, and other financial papers may be stored in a safe deposit box or other secure place.

Related Guide: To help your spouse find all the needed information and be better prepared for your death, please see the Financial Guide: POST-MORTEM LETTER: How To Prepare It And What To Include

Survivor Benefits

The next step is to determine whether you are eligible for any benefits.

Insurance

Contact any insurers that may have issued policies to your spouse. Your spouse may have had several types of insurance policies, including the following:

• Life insurance,
• Mortgage or loan insurance,
• Accident insurance,
• Auto insurance,
• Credit card insurance, and
• Various types of insurance provided by your spouse's employer.

The proceeds from an insurance policy can generally be paid directly to the named beneficiary. These claims can be processed quickly and are an important source of income for the survivors during this difficult time.

Tip: File claims for insurance policies as soon as possible, especially if finances are a concern.

You may be required to decide you want the payments made. Options might include taking the money in a lump-sum, or having the insurance company make fixed payments over a period of time. Which payment option to choose depends on your financial situation. You may, for example, want smaller fixed payments in order to have a steady income. Or you may want the full amount immediately to pay bills or to invest.

It is highly recommended that you consult with a financial advisor about this decision. Do not succumb to pressure from an insurer to accept one plan or another. Take your time and make the right decision for you and your family.

Social Security

Your spouse is considered covered by Social Security if he or she paid into Social Security for at least 40 quarters. If you're not sure or need more information, contact your local Social Security Administration office or call 800-772-1213 to determine if he or she was eligible. To find the location of your local Social Security Office, visit the Social Security Administration Office Locator.

Tip: If the deceased was already receiving benefits, do not deposit any checks received after death before checking with Social Security.

If your spouse was eligible, there are two additional types of possible benefits: (1) a death benefit and (2) survivor's benefits.

• One-Time Death Benefit. Social Security pays a one-time death benefit toward burial expenses. Complete the necessary form at your local Social Security office or ask the funeral director to complete the application and apply the payment directly to the funeral bill. This payment is made only to eligible spouses or to a child entitled to survivor's benefits.
• Survivor's Benefits for a Spouse or Children. If you are age 60 or older, you may be eligible for survivor's benefits. The amount of any benefits for which you will be eligible before age 65 will be less than any benefits due at age 65 or over. If you are under age 60, you may also be eligible for benefits if you are a disabled widow, age 50 or older and you care for dependent children under age 16 or disabled children.

Note: Children who are under age 18 or are disabled may also be entitled to benefits.

Tip: When applying for Social Security benefits, have available your spouse's birth and death certificates, your marriage certificate, birth certificates of any dependent children, Social Security numbers, and copies of your spouse's most recent federal income tax return.

Veterans' Benefits

If your spouse was a veteran who received a discharge other than dishonorable, you may be eligible to receive a non-service related death benefit. For non-service-related deaths on or after October 1, 2011, VA will pay up to $700 toward burial and funeral expenses (if hospitalized by VA at time of death), or $300 toward burial and funeral expenses (if not hospitalized by VA at time of death), and a $700.00 plot-interment allowance (if not buried in a national cemetery).

For deaths on or after December 1, 2001, but before October 1, 2011, VA will pay up to $300 toward burial and funeral expenses and a $300 plot-interment allowance. The plot-interment allowance is $150 for deaths prior to December 1, 2001. If the death happened while the Veteran was in a VA hospital or under VA contracted nursing home care, some or all of the costs for transporting the Veteran's remains may be reimbursed. Starting in fiscal year 2013, an annual increase in burial and plot allowances for deaths occurring after October 1, 2011, and is based on the Consumer Price Index for the preceding 12-month period.

Burial in a national cemetery is free to a veteran, his or her spouse, and dependent children. Veterans are also eligible for a headstone or grave marker at no charge. The funeral director can help you apply for these benefits or you can contact the regional Department of Veterans' Affairs (VA) office.

If your spouse was receiving disability benefits, you and any dependent children may also be entitled to monthly payments. Check with your regional VA office.

Employee Benefits

If your spouse was employed at the time of death, ask his or her employer about any survivors' benefits. Your spouse may also be due a paycheck for vacation or sick leave. If the employer provided life, health, or accident insurance, you may be entitled to receive payments under these policies. If your spouse belonged to a union or professional organization, find out if this organization offers death benefits for members. If the death was work-related, you may be entitled to worker's compensation benefits.

You should also contact all past employers, including federal, state, or local governments, to determine whether you are entitled to any payments from a pension plan.

If your spouse was already retired and was receiving a pension, check with the employer to determine if you will continue to receive a pension payment, and in what amount. You should get professional guidance as to when and how to take any retirement plan distributions due your spouse or you.

Related Guide: Please see the Financial Guide: RETIREMENT PLAN DISTRIBUTIONS: WHEN To Take Them.

Related Guide: Please see the Financial Guide: RETIREMENT PLAN DISTRIBUTIONS: HOW To Take Them.

The Will

If your spouse had a valid will, try to find a copy of it. Check with your lawyer, family and anyone who might know where the will is kept. It may be stored in a safe deposit box, which is sealed at the time of death in some states.

Caution: Wills should not be stored in safe deposit boxes.

If your spouse did not have a will, his or her estate will be distributed according to state intestacy law. However, the state intestacy law will not apply to property where the title is in the name of the deceased and another person who has a right of survivorship. This property automatically passes to the co-owner.

Probate

Probate is the legal process of paying the deceased's debts and distributing the estate to the rightful heirs. This process usually entails:

• The appointment of an individual by the court to act as personal representative or executor of the estate; this person is often named in the will. If there is no will, the court appoints a personal representative, usually the spouse.
• Proving that the will is valid.
• Informing creditors, heirs, and beneficiaries that the will is to be probated.
• Disposing of the estate by the personal representative in accordance with the will or state law.

The personal representative named in the will must file a petition with the court after the death. There is a fee for the probate process. Depending on the size and complexity of the probable assets, probating a will may require legal assistance.

Assets that are jointly owned by the deceased and someone else are not subject to probate. Proceeds from a life insurance policy or Individual Retirement Account (IRA) that are paid directly to a beneficiary are also not subject to probate.

Taxes

There are various taxes that will have to be paid. Here is a summary.

• Federal Estate Tax. Estate tax is generally only due on estates exceeding the unified credit exemption equivalent, which for 2015 is $5,430,000 ($5,340,000 in 2014). In 2013 it was $5,250,000 and in 2012 it was $5,120,000. In 2011, the exemption amount was $5,000,000 and in 2010, there was no exemption amount. Starting with tax year 2013, estates over the threshold amount (e.g. $5,430,000 in 2015) are subject to 40 percent tax.
• State Death Taxes. State laws vary, but generally any estate which pays a federal estate tax must also file a state estate or death tax form and pay the state death tax. This amount is paid by the estate to the state in which the deceased lived.
• State Inheritance Taxes. Again, state requirements vary. Most states charge no inheritance tax.
• Federal and State Income Taxes. The federal and state income taxes of the deceased are due for the year of death. The taxes are due on the normal filing date of the following year unless an extension is requested.

Tip: Professional guidance is strongly recommended in preparing the tax returns because the filing rules are quite complicated and many tax-saving opportunities might be overlooked by an unqualified preparer.

Changing Ownership or Title

You may need to transfer ownership or change the title of property or revise documents after a death. Here are some items that should be checked:

Insurance Policies

If you hold any insurance policies, you may have to change beneficiaries. You may decide that you no longer need to have the same coverage if you do not have dependents, especially in the case of life insurance policies. Auto insurance and home insurance may also need revision.

Your spouse may have medical insurance coverage through work. Under a federal law called COBRA, you and any dependent children may be entitled to continue under your spouse's work-related medical insurance plan for up to 36 months, provided you pay the premiums. On the other hand, you may need to purchase your own medical.

Tip: Check with the employer to see if you can continue with its group health insurance plan, which may be less expensive. Contact the company issuing the policy to make any changes or for more information.

Automobiles

The title of the car owned by your spouse may need to be changed. Contact your state's Department of Motor Vehicles.

Will

If your will provides for property to pass to your spouse, it should be updated. You may want to contact your estate planner for assistance.

Related Guide: Please see the Financial Guide: ESTATE PLANNING: How to Get Started.

Bank Accounts, Stocks, Bonds

If you had a joint bank account with your spouse, it will automatically pass to you. Check with the bank about changing the title and signature card on the account. To change stocks or bond tittles, check with your stockbroker.

If a bank account was held only in the name of your spouse, those assets will have to go through probate. An exception to this would be trust accounts.

Safe Deposit Box

In most states, if the box was rented only in the name of your spouse, it will require a court order to open the box. Only the will or any other materials pertaining to the death can be removed before the will has been probated.

Credit Cards

Credit cards held exclusively in the name of your spouse should be canceled. Any payments due on these credit cards should be paid by the estate.

Your spouse may have used credit cards in both your names or used cards listed only in your name. If so, make the payments due on these cards to keep your own good credit rating. Notify the credit card companies that your spouse is deceased and that the card should list your name only. Some people, particularly widows, may experience difficulties in getting a new card if they do not have their own credit rating.

Tip: When applying for a card, inform the lender about credit cards you shared with your spouse, even if your name was not listed.

General Finances

Debts owed by your spouse will be the responsibility of the estate and should be forwarded to the personal representative or executor who is settling the estate. However, you should pay debts that are jointly owed, particularly mortgage payments and utility or phone bills, in order to keep a good credit rating.

Caution: Do not immediately make permanent significant financial decisions, such as selling your home, moving or changing jobs. You will need some time to consider your situation before you can make these decisions responsibly. If at all possible, do not rush into a decision you might later regret.