I have lost a loved one. Now what?
Following the loss of a loved one, things that usually seem routine can quickly drain our emotional, mental and physical resources. Unfortunately, this is also the time when we are faced with a litany of tasks that are anything but routine. Whether you’re an executor, trustee or beneficiary, here are some tips to make the tough times a little easier.
What is urgent?
With so much to do, it can be helpful to know what needs to happen right away and what doesn’t. Typically, the most pressing issue is planning a service and burial that can be coordinated by the funeral home and possibly a religious institution. Although a person’s wishes are not always written down, you can find guidance on their last wishes in their health care power of attorney and living will.
Planning for these events raises the question of who will pay the costs associated with the final arrangements. It often takes weeks or more to access the deceased’s financial assets, so you can’t necessarily rely on them to cover the costs immediately.
If you’re named a co-owner on one of their bank accounts, you can access those dollars immediately (although adding someone as a co-owner to a bank account may have ramifications that you should consider at the moment). advance). Being a signer of their bank account or power of attorney will not help, as the privileges of these roles cease immediately upon death.
If they are not co-owners, the heirs will generally have to pay the costs out of pocket and be reimbursed later by the estate. Since these costs can easily exceed $10,000 and reimbursement can take months or more, this can be a strain on survivors, which is one reason why prepaying your funeral expenses and burial can be such a gift for your heirs.
Most financial tasks can wait until the end of service, as most actions cannot be performed without a death certificate. It will take a few weeks to get the death certificate and you should request several copies from the funeral home (think 10 or more). You can notify the estate attorney of the death at this time.
You may need to consult with an estate attorney to determine who the executor is and whether probate, which is a settlement of the estate with the courts, is necessary. Assets that are titled jointly or in trust and assets that have a named beneficiary will generally avoid probate, which can save you time and money.
If you are the executor, the next phase is to manage the day-to-day finances of the deceased person. Common tasks include notifying Social Security of stopping benefits, which you can do by calling (800) 772-1213, stopping any other income like pensions, canceling credit cards , mobile phone contracts, prescription renewals, utilities and other subscriptions or services that are no longer required.
Any bills that need to be paid immediately, such as utility bills, car and mortgage payments, and property taxes may need to be paid by the heirs until they can be reimbursed by the estate . It is essential to keep good records of all expenses paid on behalf of the estate. If necessary, contact companies that have not yet been paid and explain the situation to them to avoid late payment fees and penalties.
Once the death certificate is received, the executor or trustee can open an estate or trust bank account to pay bills and make refunds. To get money into this account, the money must be moved from one of the assets of the deceased. Cash in a bank, brokerage account, or trust account may be available depending on the wording of the title deed, beneficiary designation, and will. Cash proceeds from life insurance may be another resource, and if there are no liquid assets, the executor may need to sell assets to create cash.
After determining with the attorney the available cash, you will need to submit a death certificate to the institution holding the assets and complete any documentation they require to process a distribution.
Distribution of the estate
The complete settlement of an estate and the distribution of the inheritance to the heirs can take several months or even longer. Accounts with beneficiary designations, such as IRAs, employer pension plans, life insurance policies, and even some bank accounts, homes, and cars can usually be managed more easily. (Note: Make sure beneficiaries are listed on retirement accounts to avoid delays and unwanted tax consequences.) The institution can usually process distributions with the death certificate, a form or two, and instructions on how to how the beneficiary will be paid.
It is important that beneficiaries understand the tax implications of receiving inherited assets. Usually, receiving money from life insurance and bank accounts has no income tax implications for the recipients. Retirement accounts are another story. You should consult an estate attorney or financial planner to help you understand the impact of withdrawing money from a retirement plan versus opening an inherited retirement account. If you inherit shares and wish to sell them, there may be a capital gains tax on sales; make sure you know the base price of the shares you receive.
The management and distribution of assets in a trust entirely depends on the language of the trust document. The purpose of the document is to clarify who gets what and when and it is the trustee’s legal responsibility to implement these provisions. If all the assets can be distributed in trust to the beneficiaries, it may not be necessary to retain or maintain the trust. If assets are to be held in the trust over time, the trust will require the filing of an annual trust tax return. Trustees should seek advice to ensure they follow distribution guidelines and manage trust taxes appropriately.
Filing of final tax return and estate tax return
Two tax forms may need to be completed. A final tax return will be filed for the deceased and is due before the typical mid-April deadline for tax returns. Current taxes can usually be paid from the estate.
An estate tax return may also need to be filed and is usually due within 9 months of the date of death. If you are a surviving spouse, work with your estate attorney to determine if you would benefit from filing a portability election, which allows you to carry forward any unused estate tax exemptions from your late spouse.
More than anything else, it’s important to take care of yourself and not rush any of your decisions. Aside from the funeral service and managing daily inflows and outflows, there’s rarely a sense of urgency in figuring out what to do with inherited assets. These decisions could have far-reaching consequences, so take them one at a time and go at your own pace.