6 Things to Review When a Client’s Spouse Dies

Jun 14, 2024 / By Debra Taylor, CPA/PFS, JD, CDFA
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The death of a spouse can be traumatizing. You can help a client who is going through the loss of their spouse by helping guide them through decisions they need to make to safeguard their finances. Here are six important steps to take.

The death of a spouse is one of the most difficult experiences that someone will go through in their lives. The list of things to do can become overwhelming, which is why it is important to have a plan to help clients during this time of grief and need for support.

You can help your client move forward. We highlight the six most important things you can do to help a client with a recently deceased spouse.

1. Make sure the executor is handling the affairs of the estate and is getting needed guidance

An executor, either named in a will or chosen by the courts, will be appointed to handle many of the affairs of the deceased spouse’s estate. The executor will perform tasks such as the following:

  • Evaluate property and assets that haven’t been identified yet, such as credit card points and airline miles.
  • Search for any safe deposit boxes and check with state agencies for unclaimed property.
  • Investigate state-specific matters, including out-of-state property or potential estate tax liabilities.
  • Cancel the decedent’s email, social media accounts, and driver’s license to reduce identity theft risk and preserve online legacy.

Unfortunately, too often the executor is not attentive to the affairs of the estate, or often is trying to “go it alone.” They don’t realize some of the responsibilities involved or some of the nuances of those duties. If the executor is also the spouse, they are also grieving and possibly delaying certain activities.

We find that involving a professional sooner rather than later can help avoid costly errors and can smooth the process. For example, an executor may not think to contact the motor vehicles department to change the title on the car or cancel the driver’s license. Or, an executor may not realize that the Social Security Administration needs to be contacted and the last month’s check returned to the agency.

2. Examine cash flow, investments and assets

You need to evaluate how the client’s cash flow will be impacted from their loss of a spouse. You need to ensure there is sufficient liquidity to sustain the spouse during the administrative process or while the estate is being settled, and also beyond.

Important items to review include:

  • Cash flow projections related to sources of income, such as portfolio income, pensions, and Social Security survivor benefits.
  • Stock options, grants, or restricted stock units owned by the deceased spouse.
  • Investment objectives and risk tolerance.
  • Annuities or other illiquid assets.
  • Once appropriate, ask your client if she plans to sell her home. There is a $500,000 exclusion if the house is sold within two years after the date of death, although certain other requirements must also be met.

Pro tip: When reviewing the above items, be sure to adjust the income and expense plan to account for the death of the spouse. Also consider the investment strategy which can change dramatically depending on the views of the deceased spouse and the survivor.

3. Perform Roth conversion and distribution analysis

Examine Roth conversions to capitalize on the benefits of filing jointly in the last year. Advisors must consider whether it’s advantageous for the surviving spouse’s financial goals to perform a Roth conversion in the year of death while she is still able to qualify for married filing jointly, versus filing single in the next calendar year. Also look at adjusting Required Minimum Distributions (RMDs) for future projections, particularly when transitioning to filing single.

Pro tip: Don’t forget to include year-to-date RMDs, Realized Gains/Losses (RGL), and income/dividends in the analysis before making any decisions regarding Roth conversions for the surviving spouse in the year of death.

4. Discuss tax implications

Be aware of potential tax implications for clients when their spouse passes. It’s essential to confirm the payment status of the deceased spouse’s prior income taxes to avoid any potential penalties or complications. If the surviving spouse has dependent children, utilizing the Qualifying Widow(er) status can offer significant tax advantages. This status allows the surviving spouse to use the more favorable tax rates of married filing jointly (MFJ) for the two tax years after the death of the spouse, but it is subject to several limitations.

To qualify for the Widow(er) filing status, four requirements must be met: they qualified for MFJ with their spouse for the year they died (it does not matter if they actually filed MFJ), they did not remarry, they have a child, stepchild, or adopted child they claim as a tax dependent (this doesn’t apply to a foster child), and they paid more than half the cost of maintaining their home (this must be the main home of the dependent child for the entire year, except for temporary absences).

Also confirm:

  • Whether they have an estate-planning attorney. If the deceased client’s gross estate and adjusted taxable gifts exceed $13,610,000 in 2024, their representative will need to file a federal Estate Tax Return (IRS Form 706).
  • If the client lived in a state with an estate and/or inheritance tax, a state filing may also be necessary. There are a total of 16 states with an estate and/or inheritance tax. Maryland is the only state to impose both an estate tax and an inheritance tax.
  • Take advantage of the final tax return as it is the last year they can file a joint return. Study the deceased person’s assets and look for time-sensitive opportunities like carrying deferred interest on a portfolio.

Regardless of the estate’s size, it’s important to note that Form 706 must also be filed if the surviving spouse intends to utilize the deceased spouse’s unused exclusion (DSUE) or “portability.” If she decides not to file, set a reminder for five years out from the date of death to revisit, as she has until the fifth anniversary of the decedent’s death to file Form 706.

Pro tip: Be smart but don’t obsess over estate taxes. Even if the lifetime exclusion limit is cut in half in 2026, only a tiny fraction of all investors will be impacted.

5. Assess health care and insurance

Look into health care and long-term care planning, including whether the client’s coverage was through the spouse’s employer plan, as the surviving spouse may have the option to join the employer’s plan if still working. Additionally, for individuals aged 65 and older, advisors should review Medicare options with clients as that may be a better option.

Pro tip: When reviewing insurance, remember to check for any life insurance policies that may have gone unclaimed, as this can provide valuable financial resources to the surviving spouse or beneficiaries.

6. Look to maximize Social Security benefits

Advisors should make sure that the client has reported the death of their spouse to the Social Security Administration and that their eligibility for spousal support benefits has been assessed. It’s essential to ensure that the surviving spouse returns any benefits paid to the deceased for the month of death and any later months to SSA. For example, if the spouse died in July, the benefits paid in August (which is payment for July) must be returned.

Pro tip: Check to ensure the client has filed Form SSA-44, the Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharge appeal for a change of life event, and have the grounds needed for filing this appeal. This is important because the IRMAA surcharge is partially dependent on income reported two years ago on the federal tax return (i.e. the surcharge for 2024 would be based on the Modified Adjusted Gross Income on the 2022 tax return). Therefore, if income has since been reduced due to a life-changing event, such as a spouse passing away, the client is likely paying a higher surcharge than they should be and Form SSA-44 is the only way to get a reconsideration of the surcharge.

While client death is inevitable, it’s possible for advisors to take proactive steps so that they and their clients are prepared as much as possible long before it happens. To ensure readiness, advisors should engage in estate planning discussions with clients during onboarding and periodically throughout the year, particularly when significant life events occur.

By demonstrating your expertise and support, you increase the likelihood of retaining the surviving spouse or next generation for decades to come.

Debra Taylor, CPA/PFS, JD, CDFA, is Horsesmouth’s Director of Practice Management. She is also the principal and founder of Taylor Financial Group, LLC, a wealth management firm in Franklin Lakes, NJ. Debra has won many industry honors and is the author of My Journey to $1 Million: The Systems and Processes to Get You There, a book about industry best practices. Debbie is also a co-creator of the Savvy Tax Planning program and co-leader of the Savvy Tax Planning School for Advisors. Several times a year she delivers her Build a Better Business Workshop for advisors.

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