The Surviving Spouse’s To-Do List, Part 3: The Estate

Over the last few weeks, we’ve detailed the initial steps a widow(er) should take after the loss of their spouse. Part One tackled the paperwork that must be gathered, while Part Two offered advice regarding collecting survivor benefits. This week, we will address the steps regarding handling the will and preparing the estate.

Again, we encourage you to partner with a friend, family member, or trusted professional to assist you in making any necessary decisions during this difficult time. Anything that can wait – leave it until your emotions aren’t quite as high. Allow yourself the time the mourn. There are few things that can’t wait.

Estate Preparation

The first thing you will need to do is contact key people regarding the estate. Hopefully, you and your spouse worked together during the will preparation, so you are familiar with the attorney that drafted the will, as well as the contents of it. Contact the executor of the estate as well as the lawyer. If you are the executor, enlist the help of your estate attorney throughout the estate-settlement process.

Until you’ve had a chance to meet with your estate lawyer, experienced attorneys recommend that you not transfer any of your spouse’s assets into your name. Once you’ve done so, you lose the right to “disclaim” the property. When you “disclaim” property, those assets are transferred directly to your living heirs, protecting those assets from your federal and/or state-tax exemption when you pass away.

Pro tip: Before you agree to work with an attorney, inquire about their fees. Many will agree to a flat fee of a few thousand dollars. There are, however, many that charge based on a percentage of the assets in probate. Depending upon the contents of the estate, this could turn out to be a very large bill.

Probate

The term “probate” refers to the process of distributing the contents of the estate to its named heirs and paying any outstanding debts the deceased had at the time of their death. It generally entails the following:

• Appointment of an executor of the estate. If a will was never drafted, the court will appoint a personal representative, generally the spouse.
• Proving the validity of the will.
• Notification of probate to all heirs, beneficiaries, and creditors.
• Disposal of the estate, according to the contents of the will or state law.

Any assets that are jointly owned by the deceased and another party are excluded from the probate proceedings. Proceeds from an IRA and life insurance policy are also excluded when distributed directly to the beneficiary.

State and Federal Taxes

You are required to file a federal estate-tax return within nine months of your spouse’s death. State estate taxes and inheritance taxes could have an earlier deadline, so be sure to check the laws on a local level.

Summary of taxes that should be addressed and paid:

Federal Estate Tax: Estate taxes are typically only due on estates in excess of the unified credit exemption. The exemption amount changes each year, so check with your estate attorney for the most up-to-date information.

State Death Taxes: While the laws on this vary from state to state, beneficiaries are typically required to file a state death tax form or state estate and pay state death taxes. Taxes due are paid to the state in which the deceased resided upon their death and are dispersed directly from the estate.

State Inheritance Taxes: While many states do not require an inheritance tax, it is required in some states. Again, speak with an attorney or trusted tax representative regarding local law.

Federal and State Income Taxes: Taxes are due on the normal filing date of the following year. An extension can be requested if necessary.

Pro Tip: Save all receipts that are relevant to the estate, particularly if the estate’s value exceeds the estate-tax exemption. Funeral and post-funeral expenses are a legitimate write-off.

This is also a good time to revisit the subject of who will make financial and healthcare decisions on your behalf, should something happen to you. If your spouse was your representative, you will need to designate a new agent for your healthcare power of attorney, healthcare directive, and/or financial power of attorney.

Stay tuned for Part 4, where we address the next items on your to-do list. Don’t hesitate to contact us with any questions, at 1- 866-450-2424.