Would You Be Ready If You Become a Widow Tomorrow?

Nobody wants to face the realities of losing a spouse. But putting these painful thoughts away can leave you unprepared for the financial and legal difficulties that accompany such a loss. Financial planning for widowhood is an essential component of comprehensive financial planning because men and women have different life expectancies.

Even while no one can completely prepare emotionally for losing a life partner, taking care of important financial issues early on can help lower stress and offer more stability throughout the difficult time of widowhood.

Have You Established a Trust?

Consider creating a trust if you and your spouse don't already have one to manage the distribution of your assets both now and in the future. A trust guarantees that assets are safeguarded and distributed to the appropriate heirs. You can have both a trust and a will, but a trust can be used both during life and after death, but a will only becomes effective after death. When it comes to state legislation regarding the distinctions between trusts and wills, make sure to consult your advisor. For instance, in New York State a will must go through probate court, while a trust avoids probate court.

Without a trust, it can take longer to get closure, and the details about how assets should be passed on can get messy in the process. If you do have a trust, make sure it’s up to date by working with a qualified estate attorney to get all the legalities in place. 

What Advantages Do You Have?

Another crucial part of getting ready for the prospect of becoming a widow is knowing your advantages. In order to avoid having to make difficult financial decisions right away following a loss, things like Social Security, life insurance, pensions, and annuities should be evaluated in advance.

There might be additional employer-sponsored benefits available if your spouse is still employed. Together with your loved one, compile a list of all the advantages that either of you would experience if you become a widow, together with the details required to access these resources. Even though it could be challenging, discussing these advantages in advance might make you both feel ready in the event of widowhood.

Are All Financial Account Details Available to You?

Moving forward without your spouse's support is one of the most difficult aspects of being a widow. Perhaps they were in charge of all the daily financial affairs, and now you are taking on this responsibility for the first time in your life. To put it mildly, it can be overwhelming.

Making sure both spouses have access to crucial financial account information, including as checking and savings accounts, retirement plans, and other investments, is the best approach to be ready for this possibility. The account numbers and other log-in details should, at the very least, be accessible to both spouses. Additionally, remember that a birth certificate and/or marriage certificate may be needed in some situations to settle an estate (even if you are divorced), so it's critical to store these in a secure area.

Crucial elements of estate planning also include knowing who is named as the beneficiary and how these accounts are titled (individual or joint). By avoiding probate, having shared ownership on all accounts or naming one another as beneficiaries might facilitate a seamless asset transfer.

How Does Your Spending Plan Appear?

A thorough spending plan can help ease the transition by reducing the burden of making daily financial decisions, even though life after widowhood will be difficult. If you don't already have a budget, start by making one. If widowhood were to occur, you and your spouse may talk about the kinds of expenses that would be added to or taken out of the budget. Even while it might seem odd at the time, it can be a great tool for future planning.

Debts such as credit card debt, auto payments, monthly utilities, mortgage payments, and other loans should receive extra attention. To ensure that the surviving spouse has a secure monetary future, it is essential to comprehend how these debts will be handled in the event of widowhood. Leaving debt that their loved ones cannot handle is the last thing either partner wants to do. This stress can be lessened by making plans in advance, which will reassure both partners that their partner will be alright on their own.

Do You Know What the "Widow's Penalty" Is?

The "widow's penalty" is one element that may have an effect on your financial future. The situation when a surviving spouse ends up paying greater taxes on a potentially lower income after their partner's death is known as the "widow's penalty." This situation can become a costly and frustrating lesson for the surviving spouse for a variety of reasons.

The first reason for this occurrence is when you go from married filing jointly to filing single, you lose 50% of the standard deduction. This means that more of your income will be counted in your tax bill, so you’ll have to pay more than you’re used to, which can be a surprise to some.

Further, if you have not done any Roth conversions prior to this point, then the surviving spouse will have to take required minimum distributions from the combined IRAs/401(k)s. Even if the RMD amount is the same as before, the tax bill will still be higher because of the different filing status.

In addition to that, the different filing status can also affect IRMAA (Income-Related Monthly Adjustment Amount). IRMAA is a surcharge on Medicare Parts B and D. Simply put, if your Modified Adjusted Gross Income (MAGI) is above a certain threshold, you will have to pay extra on your premiums for Parts B and D, and that surcharge goes up as your income goes up. As a married couple, the threshold is $194,000, but if filing single, the threshold is only $97,000. As you can see, going from a married filing status to single filing status, but keeping the same income, will increase your chances of having to pay that Medicare surcharge.

Not only can there be added financial responsibilities and burden on the surviving spouse, there also might be the chance of paying a higher tax rate to boot.

Do You Have a Reliable Advisor?

Having a solid support network can help you get through widowhood and give you the courage to keep going. A reliable financial expert should be a part of that support network.

Make sure you like dealing with a financial advisor by taking your time getting to know them, whether you currently have one or are planning to employ one.

Make it a point to introduce the other spouse to the financial team if one spouse handles all financial concerns. It's critical that both spouses feel comfortable asking for assistance with significant financial issues because widowhood is a vulnerable time. It could be vital to reassess the partnership if one or both couples don't trust the advisor.

Don't be scared to interview multiple financial experts before selecting the one you trust the most because your well-being is of the biggest significance during this process.

Financial Planning for Widowhood: Prepare for the Unexpected

Planning ahead can offer consolation, stability, and support when it's most needed, even if it's never pleasant to consider life's most trying times. At Attitude Financial Advisors, Inc. we're committed to assisting you in achieving financial clarity and self-assurance in every situation. We're here to help you make the crucial choices that come with preparing for widowhood, whether you're planning together or dealing with unforeseen circumstances.

Let’s start the conversation today. Contact us at btrugman@attitudefinancial.com or give me a call at (516) 762-7603 to set up a free consultation.