Despite the grief and sense of loss experienced at the death of a spouse, there are steps that should be taken to settle the decedent’s estate and ensure the survivor’s planning is up to date.
The survivor is advised to request as many as 20 certified copies of the death certificate, as they will be required to apply for benefits such as pensions, retirement accounts, social security, life insurance and annuities. It is recommended to change joint accounts, vehicles and sometimes real estate to the survivor’s sole name.
If the deceased spouse left an estate that needs to be probated, with assets exceeding $50,000 in the deceased’s sole name, the survivor is more than likely the executor who must qualify as such with the county probate office. If the survivor is the sole heir, the accounting process can be simplified, but an inventory must still be filed and certain probate fees paid.
Some steps need to be taken within a specific period of time. For example, a federal estate tax return must be filed within nine months for the survivor to be able to take advantage of “portability” (allowing the addition of the unused part of the decedent’s estate tax exemption to the survivor’s exemption), even if no tax is due. A six month extension is allowed for the estate tax return. In the case of the survivor “disclaiming” accounts inherited from the deceased spouse, the action must be taken within nine months, and without receiving any benefit from the account. There’s no extension allowed for a disclaimer.
For most couples who have established an estate plan, they are co-trustees of their revocable trust(s), and they serve as executors, and agents under financial and healthcare powers of attorney. Even if the couple did not have a will, the death of one spouse means some work to identify the local personal representative on the death of the survivor.
It is important to revise beneficiaries on existing retirement accounts, annuities and life insurance to determine the appropriate beneficiaries are listed instead of the deceased spouse. Adding your own beneficiaries for any retirement assets you inherited from a spouse is important; if there is no beneficiary designated the survivor’s estate could be the beneficiary by default, and the tax-deferred account would have to be withdrawn within five years.
There’s a unique problem that arises with revocable trusts created when the federal estate tax exemption was much lower (in the years 2001 and earlier). Most such trusts called for taking maximum benefit from the estate tax exemption of the first spouse to die by designating that the maximum that could pass free of estate tax be used to fund an irrevocable “credit shelter” trust, with any excess passing to a marital or family trust. If someone with similar credit shelter language in the trust dies in 2016, the irrevocable trust will be funded with up to $5.45 million, potentially all couple’s assets. The survivor has access to the funds, but any remaining trust assets do not step up to fair market value on the survivor’s death, potentially leaving a large capital gain tax to be paid by the inheriting children. There may be terms within the trust that allow the survivor to create a new trust that does not have the capital gain pitfall, and it is worthwhile to plan a call on the estate planning attorney to review the trust, as well as prepare new documents for the survivor.