Kimberly Foss, CFP®, CPWA®
Sr. Wealth Advisor
When suffering the loss of a spouse, there are several key questions you should ask your wealth advisor.
Some of the most heartbreaking conversations for a wealth advisor may involve counseling clients who recently lost a spouse. This is especially difficult when speaking with women who came of age when the prevailing opinion was that men should make financial decisions. These women may experience uncertainty about finances: unknowns and unanswered financial questions entangled with an overwhelming sadness, often causing “decisional paralysis.”
Below are a few resources and tips that may help those who are suffering a recent loss of a spouse and are confused about finances. While there’s no clear time frame for grieving, there are bereavement groups, widow resources, and advisors who can be leaned on during times of distress. The first step is to find support. In time, handling logistics such as taxes will seem more feasible.
It’s often beneficial to share feelings of grief, sadness, and other debilitating emotions. Seek out support groups, whether in person or online, such as Widowed Village by Soaring Spirits International or Modern Widows Club (founded by Carolyn Moor, who was widowed in her thirties with two young children). Carolyn, and other bereaved women, deeply understand the need to connect with others who have experienced this type of loss.
As for financial decisions, it’s essential to reach out to people who have expertise, such as a CPA, wealth advisor, or insurance professional. Your tax advisor can help evaluate options and devise a strategy for the future. Here are five important tax questions to discuss with a CPA or other advisor as you begin adjusting to life without your partner.
If your spouse passed away and you do not remarry before December 31, you are still eligible to file a joint return for the year. This is beneficial in general because most deductions and exemptions are greater for married taxpayers filing jointly than for single taxpayers. However, it’s important to discuss tax filing status with your advisor as soon as possible to begin planning strategically for the following year. It’s likely that the tax bill will increase for a bereaved spouse who’s still working, so planning can help save you money later.
Bereaved taxpayers may be eligible to file as a qualified widow or widower for up to two years following their spouse’s death. This allows the surviving spouse to file at the same tax rate as someone who’s married filing jointly and thereby utilize higher deductions. To qualify, you must meet these criteria:
If you meet the criteria above, consult with your tax advisor to determine whether filing as a qualified widow is advantageous.
In most cases, you’ll be able to claim a “stepped-up” basis for assets following your spouse’s death. In other words, the attributed cost basis is determined by current fair market value rather than the cost of acquiring the assets. This is especially important for real estate assets and marketable securities that have appreciated significantly.
The law currently allows a taxpayer who is single to exclude from taxation up to $250,000 of capital gains from the sale of a primary residence; the exclusion for married taxpayers filing jointly is $500,000. If you’re contemplating the sale of a home following your spouse’s death, consult with your tax advisor to determine whether it’s in your best interest to sell the home while you still qualify for the higher exclusion. You should also ask about current or pending tax law changes that could impact you.
If your spouse had an IRA, 401(k), 403(b), or other qualified retirement account, you likely inherited those assets. For a traditional (not Roth) IRA, mandatory withdrawals and taxation as ordinary income may apply, contingent upon the age of both you and your spouse at the time of their death. For taxpayers born after 1951, RMDs begin at age 73. Your tax or wealth advisor can provide guidance on the commencement and annual amount of mandatory distributions.
If you or your spouse received Social Security payments in the previous year, it may also be worthwhile to consider whether to draw from your spouse’s benefits or your own. Read Social Security Tips for Divorced and Widowed Clients for more information.
After the death of a spouse, it’s important to seek professional advice from someone familiar with your situation. Make an appointment as soon as possible to help ensure that you don’t miss a critical step or deadline.
At Mercer Advisors, we have specialists who can help women in transition—including those who are beginning the difficult journey of managing finances for the first time—to form smart, sound strategies for their financial future. To learn more, contact us.
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