The Financial Impact of Losing a Spouse

This summer my family experienced an expected yet dispiriting loss. My stepfather (in reality, more of a father than my bio-dad) died after a long battle with cancer. He was an extraordinary man and his presence will be missed by many. While his death didn’t come as a surprise, his loss was devastating for my mother. I can only imagine how much more painful it would have been if he had not created an estate plan.

The death of a spouse is one of the most painful losses we will ever face. Regardless of the condition of your relationship, when the person with whom you spent years or decades in intimate proximity passes, the emotional toll alone is high.

According to the Holmes and Rahe stress scale (named for the two psychiatrists who studied the effect of stressful life events on thousands of people), nothing is more stressful than the loss of a spouse.

Losing a life partner is so traumatic that the survivor can find it challenging to care for even their basic needs—and the surviving spouse also faces a host of complex financial challenges after their partner’s death.

The process of sorting through all the fiscal issues looming after a partner’s death is far too complex to address in detail in this brief column. However, there are a few simple things you and your spouse can do right now to make things easier when the inevitable happens.

Start by looking at your bank accounts. This is the money you will need access to immediately. Death—and the survivor’s life thereafter—can be expensive. In most cases, bank accounts solely owned by the decedent are immediately frozen until the estate goes through probate. Even some accounts held in both names, such as Bob Smith and Mary Smith may be inaccessible for a while because they require both party’s signatures.

If accounts are not being left to other heirs upon one partner’s death, make sure all of your accounts use an “or” instead of an “and” and are in joint ownership with “rights of survivorship.” This type of account can always be accessed by the survivor. Later, you can present a death certificate to have your spouse’s name removed from the account.

One bit of advice after dealing with my stepfather’s recent death: Order more death certificates than you expect to use, because they may be needed for all manner of accounts like utilities, mortgages, cell phones, etc.

Next, go through all of your retirement accounts, including IRAs, 401(k)s, 404(b)s, and so on,  and make sure you have named a beneficiary. This allows for a very simple transfer of these assets to the named beneficiary when going through probate. (The beneficiary will need to present a death certificate.)

Another simple way to avoid probating an asset in an estate is to add a transfer-on-death (TOD) or payable-on-death (POD) addendum to the owner’s name on a variety of financial instruments like bank or brokerage accounts. In some states you can even title real estate as TOD.

Finally, create a will or a trust. The process can be quite simple and reasonably priced—unless you have a complex estate. Dying without a plan—“intestate”—means that no matter what you wanted, the state will decide where your assets will go based on that state’s intestacy laws.

Surveys show that a significant percentage of older Americans still have no estate plan. If you’re among this group, imagine how you would feel if you were the one faced with both overwhelming grief and the complexities of sorting out your spouse’s estate. Having an estate plan in place is the last, best gift you can give your loved ones.

The host of the nationally syndicated Don McDonald Show for over 20 years, Don now co-hosts Talking Real Money with Tom Cock on Seattle’s KOMO radio Saturdays at noon (TalkingRealMoney.com). Don also publishes the online magazine RealInvestingJournal.com.