Preparing for the Unthinkable - Part 2

S.F. Ehrlich Associates |

November 15, 2018

By: John Zeltmann

Since my Dad's passing earlier this year, my Mom and I have spent countless hours wrapping up his finances.  I thought I'd share my impressions from the past several months, highlighting lessons we learned from bumps in the road they managed to avoid (as well as some they didn't).

Items to consider in advance of death

  • Beneficiary Designations – Recheck them, for every qualified account you have. Beneficiary designations on 401(k)s, IRAs, and life insurance policies direct where the assets in those accounts go at your death.  They generally act independently of your will (unless you list a trust created under your will as beneficiary), so don't assume that because you recently updated your will that these types of assets will flow as you intend.  When working with your attorney, have her suggest, in writing (to avoid any misunderstandings), how best to set up your beneficiary designations. Generally, you want to make sure whatever you're attempting to achieve through your will is reflected in your beneficiary designations.
  • Consolidation Is Key - Do you have two IRAs that could otherwise be consolidated?  What about an old 401(k) from a past employer?  In addition to keeping track of multiple beneficiary designations, multiple accounts (especially if they're with different providers, such as Fidelity, Schwab, and Merrill Lynch) means a lot of additional work for your beneficiaries: three separate sets of paperwork, three separate phone calls to learn the procedure that each provider uses to process the rollover into the surviving spouse's name, and three different valuations that must be confirmed as of date of death for purposes of preparing the estate valuation.
  • Are there any tax planning opportunities?  If someone is gravely ill, it might make sense to consider a variety of tax planning strategies that could help ease the surviving spouse's future income tax burden.  If a husband and wife, for example, own any securities that are highly appreciated above what they paid for them, it might make sense to transfer those assets into the name of the ill spouse to obtain a step-up in cost basis. (The cost basis for any assets held in the name of a deceased individual gets stepped up to the market value as of the date of death, thereby eliminating any embedded taxable gains.)  This strategy should be implemented in conjunction with your accountant and estate planning attorney to ensure their estate planning work isn’t compromised.
  • Communicate your wishes clearly ahead of time - Shortly after receiving his diagnosis, my Dad called a family meeting (written about here).  My Dad wanted to tell us, in his words, how his will was set up and what he wished to happen at his passing.  For some people, sharing financial information with their kids is well outside their comfort zone. In other instances, due to spending issues, divorce, or general immaturity, the kids shouldn't know.  In my Dad's case, he was private with their finances until he received his diagnosis, at which point he knew it was time to bring us in on their plan.
  • Find someone you trust and involve them in your plan - Whether it’s a trusted family member, an attorney, or your financial advisor (hint: us), make sure that someone other than you and your spouse are familiar with your plan.  My knowledge of my parents' financial picture prior to my Dad's passing has been very valuable to my Mom.  Settling someone's estate is an entirely new landscape filled with complexity.  Mom just lost her spouse of 44 years, so that complexity is compounded by the fact that most of her capabilities are directed towards mourning the loss of her husband.  The more you can get a trusted contact involved with your total financial picture, the better they can assist during times of crisis.

Items to consider after death

  • Security Concerns - Identity thieves scour the obituary columns looking for their next targets under the unfortunately accurate assumption that family members aren’t paying attention to the deceased individual’s old accounts.  In coordination with the settling of the deceased’s estate, be sure to close any accounts that won’t be used going forward, to include credit cards, and investment and bank accounts.  Also, consider sending a “deceased - do not issue credit” letter to each of the three credit reporting agencies (Experian, TransUnion, and Equifax) to ensure no additional credit cards or loans can be issued in the name of the deceased or his/her Social Security number.
  • Frozen Accounts - Once news of the account holder’s death is received by a bank or custodian, the account is typically frozen until the assets are rolled to the intended recipient.  This can be problematic if the surviving spouse is relying on certain accounts for cash flow or if the frozen account holds a concentrated stock position that needs to be trimmed. To address the cash flow issue, consider obtaining a home equity line of credit that can be tapped to supplement cash flow while the estate is settled.

When I was younger, my Dad drilled into my head that there's nothing more valuable than an education, be it through life experiences or in the classroom: “Once you have it, nobody can ever take it away from you."  I hope some of these lessons and observations help you and your loved ones when it comes time to deal with the loss of a family member.





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