The unexpected death of a spouse is devastating.
Many factors in life cannot be controlled.
Some of these can lead to untimely deaths.
Even those who make healthy decisions can become victims of tragic accidents, sudden illnesses, or unfortunate genetics.
According to a recent New Haven Register article titled “Are you prepared if your spouse should unexpectedly pass away?,” these events can often leave loved ones in emotional and financial turmoil.
Although you cannot prevent the heartache associated with an unexpected death of a spouse, you can provide financial security.
What steps should you take?
Having a valid last will and testament (last will) or fully-funded revocable living trust (RLT) in place is essential to the smooth distribution of property.
According to the article, the best practice is to work with an experienced estate planning attorney in your state and review your documents every three to five years or after major life changes.
We recommend reviewing your estate plan, with or without assistance of an attorney, every two years.
It just seems like the pace of change has and is accelerating.
If you do not have an updated last will or RLT, you could fall prey to the law of unintended consequences.
Some folks have left an inheritance to an ex-spouse or left loved ones subject to intestacy laws.
This latter oversight means the court would be responsible for choosing your heirs and possibly for selecting a guardian for orphaned minor children.
Finances can be particularly problematic after the unexpected death of a spouse.
Widows and widowers may be dependent on your pension, and survivorship benefits should be clarified prior to your death.
Social security needs to be notified of the death of a spouse.
The surviving spouse may then be eligible to claim a portion of the benefits from the income of the decedent spouse.
Although retirement accounts are useful investments, they can be tricky in estate planning.
The nature of the beneficiary typically determines the rules for retirement accounts.
If a spouse is the beneficiary, then the money can be rolled over and used as if it always belonged to the retirement account of the surviving spouse.
For non-spousal beneficiaries, with limited exceptions, the inherited retirement funds must be completely withdrawn within ten years of the death of the original owner.
Life insurance by nature is used to prepare for an unexpected death.
The name of the broker and the policy should be stored in a safe location.
Beneficiary designations should be reviewed and kept up-to-date so the proper loved ones or charities inherit.
How certain assets are titled also influences what happens in the event of an unexpected death.
If you have a non-qualified investment account owned individually rather than jointly, naming a beneficiary is helpful if your goal is to bypass probate.
Property like motor (or electric) vehicles can also be tricky.
If you do not have both names on the title of a vehicle, your may leave your spouse having to wait on probate for permission to sell it.
What about titling a house?
Homes titled as Tenants-in-Common will require the half of the property owned by the decedent owner to go through probate.
If the house is titled as Joint Tenants with Right of Survivorship, then the surviving spouse will be able to inherit the whole property automatically.
Those who have assets worth more than $12.06 as a single or $24.12 million as a couple filing jointly could be subject to estate taxes if one of them dies in 2026 without proper planning.
That estate tax exemption amount will automatically default by half on January 1, 2026.
Consequently, there are some very savvy estate and gift tax moves you can take right now to legally avoid or minimize such taxes later.
Yes, this stuff gets complicated.
If the estate tax exemption is not fully used by the first spouse, the surviving spouse could elect portability using the federal estate tax return Form 706.
This allows the surviving spouse to utilize the unused exemption amount of the first spouse.
Although an unexpected death leads to challenges for those left behind, estate planning can reduce the family and financial fallout.
Time spent working with an experienced estate planning attorney can avoid some unpleasant surprises for your loved one.
Reference: New Haven Register (Aug. 20, 2022) “Are you prepared if your spouse should unexpectedly pass away?”