There are several steps to take while both spouses are alive and well, to help reduce the chance of the surviving spouse finding themselves in a “financial deadlock” situation or stuck in probate court. The preparations require the non-financially dominant partner to be involved as much as possible, says Barron’s in the article “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”
Step one is to prepare the financial equivalent of a “go-bag,” like the ones people are supposed to have when they must leave their home in a crisis. That means a list of all financial contacts, advisors, estate planning attorney, accountants, insurance professionals and copies of all beneficiary designations. There should also be a list or a spreadsheet of all the couple’s assets and liabilities, including digital assets and passwords to these accounts. The spouse should also note the location of financial records, including insurance policies, wills, trusts and any other critical legal documents.
Each partner must have access to checking and cash independently of the other, and the spouses need to review together how assets and accounts are titled.
It is especially important for both spouses to be on the deed to their home with right of survivorship, so that the surviving spouse can easily prove that they are the sole owner of the home after the spouse dies. Otherwise, they may not be able to communicate with the mortgage company. If a surviving spouse must go to court and file probate in order to deal with the home, it can become costly and more stressful. Hence it is important to plan the estate to avoid probate court.
It’s not emotionally easy to go through all this information but it is critical for the surviving spouse’s financial security.
Any information that will be needed by the surviving spouse should be documented in a way that is easily accessible and understandable for the spouse. Even if someone is very organized and has a well-developed description of their assets and estate plan, it may not be as easily understood for someone whose mind works differently. This is especially true, if the couple has had years where the non-financial spouse was not involved with the family’s assets and is suddenly digesting a lot of new information.
It is wise for the non-financial spouse to meet with key advisors and take on some of the tasks like bill paying, reviewing insurance policies and reconciling accounts well before either spouse experiences any kind of cognitive decline. Ideally, the financially dominant partner takes the time to train the other spouse and then lets them take the lead, until they are both comfortable managing all the details. It will also be wise for the surviving spouse to meet with the estate lawyer to see if opening a probate is needed.
Each spouse needs to understand how the death of the other will impact the household income. If one spouse has a pension without survivor benefits and that spouse is the first to die, the surviving spouse may find themselves struggling to replace that income. They also need to consider daily aspects of their lives, like if one spouse is highly dependent upon the other for caregiving.
Spouses are advised not to make any big financial or life decisions within a year or so of a spouse’s death. The surviving spouse is often not in a good emotional state to make smart decisions, and this is the time that they are most at risk for senior financial abuse.
Both spouses should sit down with their estate planning attorney and discuss what will happen when they are widowed. It is a difficult topic but planning ahead will make the transition less traumatic from a financial and legal perspective.
Reference: Barron’s (Sep. 15, 2019) “How to Avoid Financial Deadlock—or Worse—After One Spouse Dies”