March 7, 2019

What do surviving spouses need to know about estate planning?

One of the harder parts of the financial planning profession is working with families following the death of a loved one. Administering a decedent’s will or trust, dividing and distributing assets, and the filing of estate tax returns involves a coordinated effort between the family’s financial, legal, and tax teams. The surviving spouse can be overwhelmed, particularly if they are not familiar with the investment, tax, or legal structure of the family finances.

Statistically, women are more likely to be left as a surviving spouse due to their longer life expectancy. They are also more likely to be left out of conversations around money and estate planning. At Arnerich Massena, our advisors focus on making it possible to bring all family members (including children, when appropriate) into a discussion of the family’s basic financial structure and estate plan. This often starts by understanding what to expect when the first spouse passes away, including:

  1. You may end up with a trust or two. When a person dies, he or she can leave unlimited assets to their surviving spouse with no federal or state estate tax due. The individual can also leave limited amounts to non-spouses with no estate tax due, called exemptions. Estate plans often use trusts in order to make the most of the federal and the state exemptions of both spouses. These trusts may be established for the benefit of the surviving spouse, who is often the trustee. Practically, the only difference most surviving spouses see is that the accountant files one more tax return each year (for the trust).
  2. You might do some disclaiming. Disclaiming an asset is the legal equivalent of announcing, “I do not want what someone has given me.” It seems like an odd tactic for spouses to use legal disclaimers to effectuate estate planning, but it’s actually quite common. Disclaimers are used to preserve some planning flexibility in order to adjust to any changes in the estate tax exemption at the time of the first spouse’s death. Trusts often include clauses that say something like, “I leave everything to my spouse, but any assets she disclaims will go to a trust for her benefit.”
  3. IRAs have special rules for spouses. If your husband or wife dies and leaves you as the named beneficiary on an IRA, you have the option to roll these assets into an IRA of your own. If you inherit an IRA from anyone other than your spouse, you may not roll it to your own account and must instead begin taking distributions.
  4. Women should plan for about two more years of expenses than men. A 75 year-old woman in the U.S. has a life expectancy of about 12 years, while a 75 year-old male has about ten years. This two-year difference sounds fairly small, but consider that they are often spent paying for some level of medical/nursing/memory care. These can be expensive years, and it’s important to plan for this.
  5. Be prepared to hire help. There is a significant amount of accounting when a first spouse passes, but you do not have to do it alone and there is no hurry to get it done. There are lawyers and accountants who make their living by calculating and reporting the date-of-death values of property owned when someone dies. If your family has some complexities or has assets with values in the neighborhood of your local estate tax thresholds, it’s wise to hire someone to help. Keep in mind is that estate tax returns must be filed within nine months following the date of death, and consider hiring any professionals well before that deadline.
  1. Finally, keep your receipts. Expenses related to medical costs, ambulance rides, funerals, and burial costs are all deductible, as impersonal as it sounds. Your accountant or estate attorney will help you determine which expenses may be deducted on the estate tax return(s).

There is nothing easy about losing a loved one, especially when that person is your spouse. Unfortunately, half of all married people will likely find themselves there one day, as we are not always able to leave this world together. In the event you find yourself in this difficult position, please let us know if Arnerich Massena’s planning team can help out. We are neither practicing attorneys nor accountants, but we often serve as the link between the family and their legal and tax professionals.