Being financially prepared for the death of a spouse
Could you cover all of the bills if your spouse passed away? Would you even know what was due and where important paperwork was located?
The tragic truth is that many people would have no idea where to begin. According to "Widows Under Stress," a New York Life survey released in November 2014, women are especially unprepared to take over the finances after a loved one has passed. Sixty-eight percent of the widows who responded to the poll reported significant, negative lifestyle changes, with financial concerns as their most primary and pressing troubles.
While offsetting the emotional fallout from the death of a life partner may be impossible, you can make sure you're not hit with an economic disaster. It's time to learn what it really takes to run a household -- both as a couple and on your own.
The changes come suddenly
When Seattle resident Shannon Riley's father died, it was a surprise to the entire family. "He woke up, had a cup of coffee, looked fine and went out to his workshop in the barn," says Riley. Her mother found him passed out on the floor half an hour later. He died soon after. "It was absolutely shocking," says Riley. "He was 69 and was not on any medication."
That event immediately set in motion what Riley describes as total chaos: "He managed all the finances. It was a big mess and the entire situation continues to be messy two-and-a-half years later."
What was Riley's mother lacking? Information. Riley's father had been a part-time employee for one company while also running another small business with a partner. He had multiple sources of income and a complicated web of taxes and expenses. Her mother had health issues that complicated the task of coping with his death and piecing together the family finances.
Knowing the details of your household's finances is essential, says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. She got a firsthand lesson in 2014 of how quickly health care issues can invade personal finances.
"My husband fell in August, broke six ribs, and spent 16 days in a hospital and a nursing facility," says Cunningham. "He has his own business, so I had to get a very quick lesson in what he does. Suddenly, I had to meet payroll. It was a wake-up call for us. I made it a point to know more about his side of the finances."
As a duo,
create a budget for one
Understanding how much money you need for your expenses when you're on your own is foremost, says Cleveland private wealth manager Ed Vargo. His company, Burning River Advisory Group, specializes in helping people, women particularly, prepare for life's eventual end.
If both partners are still employed, one income will disappear (or be replaced by a smaller life insurance distribution), yet the bills will continue to arrive as before. In general, expect to meet 75 to 80 percent of your current expenses, recommends Vargo: "It's not like everything stops when your spouse dies."
To obtain an accurate estimation for the future, both you and your spouse should sit down and review today's budget. Examine each line item carefully and then start to project which of those expenses will increase, decrease and remain fixed.
For example, says Vargo, if you have young children, you might have to pay extra for child care. Routine chores one spouse handled, such as yard work, home maintenance and cleaning -- could require outside help, creating new monthly bills. Conversely, what you're spending on insurance premiums and groceries may decrease. If you don't need a second car, transportation costs may be cut. Housing expenses, such as rent or a mortgage and most utilities, will likely stay the same.
My husband fell in August, broke six ribs, and spent 16 days in a hospital and a nursing facility. He has his own business, so I had to get a very quick lesson in what he does. Suddenly, I had to meet payroll. It was a wake-up call for us.
|-- Gail Cunningham
National Foundation for Credit Counseling
Consider hiring a financial planner to get budget, tax and estate planning advice. If you can't afford one, make an appointment with a nonprofit credit counseling organization instead. They provide free to low-cost budget and debt counseling sessions.
Chances are you'll emerge grateful for the experience, assures Cunningham: "It feels good to sit down across a desk with a trained professional. A counselor will help devise a plan to get you from point A to point B."
Riley says her mother and other relatives who stepped up to help would have been better off if both spouses kept better records. "Keep an organized file system!" urges Riley. At the very least, put all financial materials in one, accessible place.
It's common for one person in the relationship to assume all or most of the money and banking management, so get ready to learn and share. "There needs to be a walk through," says Vargo. "Both parties need to know where the account paperwork is, physically and on the computer. What are the passwords for everything online? You've got to get up to speed. There might be automatic payments for a car or utilities. They will continue on. Both spouses need to know so policies don't lapse or bills go delinquent."
What blindsides people, says Vargo, is the magnitude of the task, which is why being proactive is so crucial. "When a spouse dies, it all feels like everything is coming down at once. Suddenly you have to manage investments, taxes, bills. It's hard enough to do all that in a normal state, but when you're grieving, even simple things become difficult. It's far worse when you don't know where anything is."
clean with debt
A January 2015 poll conducted by CreditCards.com found that about 7 million U.S. consumers have concealed financial accounts from their significant others. If you're in one of those relationships, 'fess up.
"Relationships aren't perfect and sometimes debt comes as a shock," says Vargo. People can sign credit and loan documents without reading them, becoming unwitting co-signers. "Debt blindsides them. Having a conversation about it beforehand and putting your cards on the table is extremely important."
Each partner needs to pull credit reports and share them with the other. Cunningham recommends doing this once a quarter. You'll eliminate unpleasant surprises and know if you're moving in the right direction. If you have debt, it will give you the opportunity to discuss how to handle it.
Coming clean isn't easy, but if you love someone it's a necessity. It's better to be stunned in the present when you are emotionally equipped to deal with a problem, than later when you're in a state of psychological shock and profound sadness.
"I had a friend die unexpectedly and a few months later the husband came to me and said, 'Gail, I have a credit card bill for $16,000!' He had no idea," says Cunningham. She had to walk him through the questions regarding his responsibility for the debt.
Learn the law
Don't immediately panic if you do unearth unexpected balances. You may not be legally tied to the account. When you both pull your credit reports, look further than just the figures. Also check if the accounts indicate joint or individual ownership status.
If the account is in your spouse's name only, and you do not live in a community property state where debts and assets accumulated during the course of the marriage are the responsibility of both spouses, the creditor can claim what's due from just the estate.
No estate to speak of? Check with an attorney, but you probably don't have to plan for repayment. What would be wise, though, is to prepare for collectors to reach out and say hello.
"I encounter many clients who are unaware that their deceased spouse's debts do not transfer over to them," says Orlando, Florida, attorney Walter Benenati, whose firm concentrates on bankruptcy and credit law. "On many occasions, the widow feels obligated to pay due to the aggressive nature of the collector's call." Some unethical collectors will insist the widow or widower is responsible for repayment when they know it's not true.
Finally, beware of any credit cards that you're attached to as an authorized user, too, says Benenati. Although you're not technically an owner of the account, having your name on the card and the account information on your credit reports is still too close for comfort. Extricate yourself from the arrangement while your spouse is still living if the balance is high. It usually just takes a phone call and you don't need permission from the actual account owner.
Need more inspiration to start a money conversation with your spouse? Heed the widows who participated in the New York Life survey: 30 percent wished they had detailed discussions about what might happen financially if one of passed, and nearly two-thirds regretted not saving more when they had the chance. There is much the two of you can do now to offset any serious financial surprises should one of you pass away suddenly. And it all begins with simply being candid about credit and cash flow.See related: What happens to credit card debt after death?, Joint truck lease leaves widow in a lurch
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