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Losing your spouse is incredibly painful, and a major disruption in the life you had planned together. Having to focus on legal or financial concerns can feel overwhelming — but thankfully, many decisions can wait awhile. Some, though, need to be addressed immediately so that you and your family can take steps to protect your financial future.
Right now, there’s a lot to think about. It’s important to know what income you have and how you can access it quickly. You may need to pay taxes and bills. You’ll want to notify interested parties of your spouse’s passing, and change the names on your accounts. And you’ll need to ensure that your spouse’s estate is executed properly, according to the directions in the will.
Managing your stress and making the decisions that are best for you requires some thought and support of professionals dedicated to meeting your needs. Your attorney and accountant have important roles to play. So does your Merrill Lynch private wealth advisor, who can help you take steps to protect your financial future.
Supporting your goals
As you take the steps to settle your spouse’s estate, your financial advisor can answer questions and work closely with your attorney or accountant. He or she can help you:
When you feel ready to tackle bigger issues, he or she can assist you in updating strategies for sending your children to college or planning for retirement. If you’re already retired, he or she can help you fine-tune your investments to meet your needs for years to come. You also might want to increase annual savings, reallocate assets or discuss the various options available to you if your spouse had an employer-sponsored retirement plan.1
If your spouse always handled the investing, your advisor can readjust the portfolio to reflect your and your family’s needs, goals and income requirements going forward.
Your financial advisor can also help you:
When Susan is killed in an auto accident at 46, her husband Geoffrey is paralyzed with grief and anxiety. With two children under the age of five, Geoffrey feels life will never return to normal. Even though Susan and Geoffrey acted as a team on family finances, it takes Geoffrey six months to deal with the responsibilities associated with settling his wife’s estate. When a late notice from the IRS arrives, he is spurred to action.
Planning for maximum income
Geoffrey contacts his local Merrill Lynch advisor, as recommended by his attorney and accountant.Geoffrey pursue the survivor benefits that he and his daughters are entitled to. Although Geoffrey’s income is enough to support the family, he is glad to receive the Social Security benefits and access to Susan’s employee stock options and pension. Since Susan also had several life insurance policies, Geoffrey’s advisor insurance specialist who determines that there are enough funds to cover the girls’ college educations and pay off the mortgage and car loans.
To cover his overdue tax bill, penalties and delinquent home equity loan payments, Geoffrey’s advisor and accountant suggest selling underperforming stocks. A Bank of America specialist to help him refinance his home equity loan to get better terms. Gradually moving him out of a concentrated stock position from Susan’s firm.
Preparing for the future
Finally, Geoffrey’s attorney helps him update his will and beneficiary designations establish trusts for his daughters. Thankful for the chance to restore financial balance, Geoffrey he now has time for what’s really important: helping his family work through their grief.
Soon after Mary Beth and Peter’s 50th wedding anniversary, Peter has a fatal stroke. Even in declining health, Peter had continued managing the couple’s finances. Mary Beth has never been interested in financial matters and feels overwhelmed by the need to assume an active role now. She seeks help from a Merrill Lynch advisor that Peter knew.
Clarifying her needs
At their first few meetings, Mary Beth and her advisor discuss her concerns and finances, and clarify what needs to be done. He walks her through every step of the process to be certain she understands and is comfortable with the next steps. To meet immediate income needs, he suggests that she apply for Social Security and veterans benefits and roll over Peter’s IRA to an account in her name. Mary Beth also needs to pay off debts, credit in her own name and to restructure the payments.
Because Mary Beth wasn’t involved in Peter’s investment decisions, she asks for her advisor’s help in understanding her portfolios.
Simplifying bill payments
Since Mary Beth is also new to the routine of paying monthly bills, up an automatic bill payment program. With his support, she now feels capable to manage her finances.
Patricia thought she was ready for the day Doug would lose his battle with illness. But the 55-year-old professor soon realized there is no way to prepare for losing “the love of your life.” Fortunately, Patricia and Doug were financially prepared, something they deemed important because they had a blended family with four adult children from previous marriages.
Creating cash flow
After Doug’s passing, Patricia arranges a meeting with their long-time Merrill Lynch advisor, income is sufficient to cover household bills, moving to a smaller home could free up cash for other needs. Because insurance policies had been kept up to date, Patricia will receive a lumpsum payment large enough to provide a comfortable “safety net” and pay off the mortgage and other debts.
Concentrating on the future
Doug’s illness-driven decision to sell his interest in a privately held firm also helps leave Patricia more financially secure. Doug had arranged for a structured payout, which Patricia will receive over 20 years. Attorney and accountant clarify details of the buy-sell agreement. Patricia also inherits Doug’s 401(k) plan. After reviewing several options, rolling the assets over to her IRA.1
Dealing with complex issues
Finally, the attorney and advisor assist Patricia with legacy planning issues regarding the couple’s children from previous marriages. While wills and trusts were established to direct how their estates would be passed, failure to include a nocontest clause leads to the threat of lawsuits from two of the children. Patricia’s advisor works closely with her attorney as he restructures the trusts. Upon completion, she tells them that they’ve helped her fine-tune her plans so she can begin to move on with her life.
Losing a loved one is stressful, but it’s so important to ensure that your basic financial needs are met. That means being sure you have enough income for your living expenses as well as for funeral costs, taxes and debt.
The following “to do” checklist reflects the insights of experienced attorneys, accountants and Merrill Lynch advisors. Tackling these issues with the assistance of your professional team may help you feel more in control during and after this transition.
☐ Gather and organize important documents such as birth, death and marriage certificates, wills, trusts, Social Security numbers, veterans’ discharge papers, insurance policies, property titles, bank and brokerage statements, retirement plan and pension statements, credit card and loan information, joint tax returns, employee benefits records, and business partnership agreements.
☐ Contact any financial institutions that your spouse did business with and inform them of the death. Have his or her name taken off joint accounts, loan documents and credit cards. Record your ownership of real estate, cars and other property. Accounts and assets owned solely by your spouse may need to go through probate.
☐ Identify sources of income available to you as a widow or widower and find out how to access them right away. These may include:
☐ Social Security. You will receive a death benefit for burial expenses. Depending on a variety of factors (for example, age, disability status, dependent children), you may also be eligible to receive survivor benefits.
☐ Veterans’ benefits. If your spouse was a veteran and received an honorable discharge, you may be eligible for a variety of benefits, including a lump-sum or monthly death benefit, educational assistance, and medical care.
☐ Employee benefits. Your spouse’s employer can inform you of any survivor benefits, final paychecks, deferred salary or bonuses, stock options, retirement plans or annuities. Don’t forget to contact past employers to find out whether there are additional retirement plans or other benefits to which you are entitled.
☐ Life insurance. If your spouse owned life insurance policies and named you as beneficiary, you will need to notify insurers. Insurance proceeds usually are received within weeks of the insured’s death and are not subject to federal income tax. Depending on the type of policy (or policies), you may have a choice of lump-sum, interestonly or annualized payments.
☐ Investments. You may be able to generate additional income by having your financial advisor review and reallocate your portfolio to provide income from investments designed to pay interest or dividends.
☐ Create a “lifestyle spending plan” based on current expenses and all sources of income, including those described earlier, and any salary, rent or investment income of your own.
☐ Address estate plans. Speak with the executor of your spouse’s will (if it’s someone other than you) and your attorney to make sure you understand what you have inherited and what you owe. In addition to a will, your spouse may have drafted a testamentary letter indicating how personal property will be distributed. He or she also may have established trusts to accomplish a variety of estate-planning goals, including providing you with a source of lifetime income. Note that if you are the estate executor, you will need to speak with your attorney right away about how to carry out the related responsibilities.
☐ As soon as possible, ask the attorney to update your estate plan. That should include revising your will, testamentary letter and other relevant documents, and evaluating the potential role of trusts. Also be sure to update beneficiary designations on all your accounts, plans and policies.
☐ Pay taxes. Your accountant can help you file your spouse’s final federal and state income tax returns and address any other outstanding tax concerns or liabilities.
☐ Manage credit wisely. Establish credit in your name if you haven’t done so in the past, and obtain a credit report so you can address any problems or concerns. Renegotiate payment terms on debts of your own and/or those held jointly with your spouse. Note that any debts in his or her name only are the responsibility of his or her estate.
☐ Insure yourself. If you need health insurance, call the Human Resources/Benefits department at your spouse’s former place of employment (or contact the insurance company directly) to ask about COBRA health coverage, which may be available to you for at least 18 months. If you have dependent children, you’ll need to re-evaluate the need for disability income and life insurance to protect them in the event that something happens to you.
☐ Decide where you’ll live. Consider whether you prefer to stay in your home, or if you might be ready to scale down, move to a new location or find a roommate. Be sure to weigh the potential costs of living arrangements, such as upkeep.
☐ Calculate your “net worth” (that is, what you own minus what you owe) to better understand your financial capabilities.
☐ Identify long-term goals and make sure they stay on track.
☐ If you have young children, find out whether term life insurance will be adequate to pay for college. If necessary, address or supplement this goal through college savings plans or other alternatives.
☐ Ask your financial advisor to calculate what you’ll need for retirement, then try to maximize contributions to employer-sponsored retirement plans and/or IRAs. Also, learn about options for handling any retirement plan assets inherited from your spouse, such as rolling them over to your own IRA.1
☐ If you’re already retired, ask your advisor about managing assets wisely to help them last as long as you’ll need them. If your spouse was retired and was receiving a pension, ask his or her employer if payments will continue.
☐ Revise your investment strategy with the guidance of your advisor so your portfolio will reflect your own unique needs and goals.
☐ Join a support group or talk to someone you trust.
☐ Take time off from work or other regular activities.
☐ Stay well with a healthy diet and sufficient exercise.
☐ Decide what you’ll do next, whether returning to work, going back to school, focusing on philanthropy, traveling, or pursuing a personal interest long put off. Once you’ve identified your goals, talk to your advisor about how to fit them into your financial picture.
Asset allocation does not ensure a profit or protect against a loss in declining markets.
1You have choices for what to do with your employer sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to rollover to an IRA or convert to a Roth IRA, rollover an employer sponsored plan from a prior employer to an employer sponsored plan at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments.
The scenarios presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only and are intended to demonstrate the capabilities of Merrill Lynch and/or Bank of America. They are not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality.
The checklist above is compiled from many writings on widowhood. It provides some of the action steps you should consider and is intended to offer an overview of materials and activities that may be of assistance. It may not be complete or appropriate for your circumstances. It does not indicate future performance or success. You should consult your attorney and accountant in connection with any actions. Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither Merrill Lynch nor its financial advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.