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Women and Wealth: Financial Advice for Recent Widows

Most new widows have a lot of questions about financial matters. Below are the questions that I am most frequently asked, as well as my advice for helping women feel in control of their new financial situation.

Q: My spouse handled most of the finances. Now, I am overwhelmed and am not sure where to start.

A: The best place to start is to take an inventory of what you own and what you owe, which will help you to create a net worth statement. List your assets on one side, i.e., IRAs, 401(k)s, brokerage accounts, annuities, pensions, life Insurance proceeds, home value, etc. On the other side, list your debts, i.e., home mortgage, auto and credit card loans, equity line, etc. Subtract your debts from your assets to determine your net worth.

Next, create a monthly cash flow statement by listing monthly expenses and monthly income sources, i.e., social security, job, rental income, pension income, etc. If the monthly expenses are greater than your monthly income, then withdrawals may need to be taken from your investment account(s).

Q: What is a safe amount to take from investment account(s) while ensuring that I don’t run out of money?

A: A good rule of thumb is about 4-5% per year of the value of your investment account(s)—and don’t forget to increase this amount by inflation each year. Even better, have a financial advisor create a retirement plan for you. Advisors have the knowledge and expertise to determine what your specific safe withdrawal amount is.

Q: Can I leave our accounts in both of our names?

A: It is important to make sure the titles on all accounts are updated. If you owned accounts in joint tenancy, then your spouse’s name needs to be removed. If you owned accounts in the name of a trust, most likely both you and your spouse are listed as trustees. The social security number of the first trustee listed is usually assigned to the trust account. If the first trustee is your deceased spouse, then a new account needs to be opened under your social security number, listing you as sole trustee (if that is what your trust states).

Q: What happens to my spouse’s IRA?

A: As a spouse, you can rollover your late spouse’s IRA assets into your own IRA where the assets can grow tax-deferred with no required inheritance distributions.

Q: My deceased spouse was the designated beneficiary on my accounts. Now what?

A: For most couples, the odds are high that the spouse was named as the primary (and sometimes only) beneficiary on accounts. It’s important to update the beneficiary designations after your spouse dies, and don’t forget to update your trust as well, as it’s likely your late spouse was a co-trustee with you.

Q: How do I handle Social Security? We were receiving two checks. What happens now?

A: If you were both receiving social security, then you can apply to receive the larger of the two amounts (but not both). If you are at least 60 years old, you can receive a reduced spousal benefit, but if you wait until full retirement age (65-67, depending on your birth year), you will receive the full amount. If you take the benefit before full retirement age, you will receive a reduced amount. It’s worth visiting to access your social security statement to see what your survivor’s benefits are. Also, make an appointment with your local social security office to discuss survivors’ benefits. Be sure to bring your spouse’s death certificate AND your marriage license so that you get the help you need.

Q: Are there any tax benefits I should take advantage of?

A: Yes, all taxable accounts in a trust name (or joint name in a community property state) should have a date of death valuation. This means the new cost basis is the market value as of the date of death. Therefore, capital gains made during your spouse’s life are not taxed. Only capital gains made after your spouse’s passing will be taxed to you when realized. Your bank, broker, or financial advisor can help you.

Also, if you are in a community property state like California, there is a full step-up in cost basis of your home. Furthermore, if your home is sold within 2 years of your spouse’s death, you will receive the higher $500,000 tax exemption on capital gains once sold. If you sell the home more than 2 years after your spouse’s death, then the $250,000 tax exemption for singles is used. If your home was purchased long ago, it’s best to have a real estate appraiser run a valuation as of the date of death so that you have record once your home is sold (odds are, there will be little or no capital gains tax).

Q: I’m not sure I’ll have enough money to live on, what should I do?

A: It is best to draw up a budget to determine what is no longer needed—examples include selling one of two automobiles, canceling your late spouse’s medical insurance, and cancelling subscriptions or memberships that only your deceased spouse used. Downsizing your home is also an option, as less space may be needed. Don’t forget to collect any life insurance proceeds (which are tax free). As stated earlier, contact your local social security office to make sure you are receiving the maximum social security benefits.

Q:  How do I handle my investments? My spouse made our investment decisions.

A: Your financial needs may change once your spouse passes away. Maybe you need to draw a monthly amount from your account(s), and therefore, need a more conservative, income producing investment strategy. It is best to seek the help of a financial advisor if investing is not your area of expertise.

Losing a spouse is a difficult, life-changing event. Evaluating your financial matters during this time can feel overwhelming. A Capital Advantage financial advisor can help you to understand your new financial situation and help you better position yourself for a more secure financial future.

Author Profile

Donna Zinman

The Author: Donna Zinman

Donna Zinman is a Principal and Senior Financial Advisor at Capital Advantage. She is a Chartered Retirement Planning Counselor (CRPC®) and an Investment Advisor Representative. As a Senior Financial Advisor, she is part of the investment team and is responsible for establishing new client relationships, managing investment portfolios and financial planning, as well as firm marketing and human resource management. Donna specializes in working with women in transition: about to retire, newly retired, widowed or divorced.