3 time-sensitive money tasks for new widows and widowers

By LIZ WESTON

Associated Press

Jan. 10, 2024 8:56 AM PT

Widows and widowers are often told not to make any major decisions for a year or more after a spouse’s death. Grief can cause you to make choices you later regret.

Some financial tasks, though, shouldn’t be postponed. Revising your budget, meeting with a tax pro and securing access to credit can help protect you from unpleasant surprises later.

Revise your budget

Your income and expenses are both likely to change after a spouse’s death, which means it’s time to draw up a new budget.

A 2020 study for the Federal Reserve Bank of Chicago found income for survivors dropped an average of 37% in the three years after a spouse’s death compared with the three years prior. You may have to figure out how to get by without your spouse’s paycheck or, if you were both receiving Social Security, how to live on a smaller benefit. (When a spouse dies, the survivor typically gets only the larger of a couple’s two Social Security checks.)

Of course, you may have other resources. If you have minor children, you may qualify for additional Social Security benefits. You also may have life insurance proceeds, investment accounts or retirement funds you could use for living expenses.

Figuring out how to create a sustainable income stream from these resources can be complex, so consider getting help from a fiduciary financial advisor. If money is tight, look for resources that provide free or inexpensive advice, including the Foundation for Financial Planning’s pro bono financial services and Advisers Give Back, a nonprofit that links people who need financial coaching with certified financial planners.

While some expenses may diminish or go away, others may increase, said Jennifer Murray, a certified financial planner in New Providence, N.J., who was widowed at 43. You may pay less for health insurance and groceries, for example, but your tax rates may go up, even if you have less income. This so-called “widow’s penalty” is the result of shifting from a favorable married-filing-jointly status to a less favorable single status.

Consult a tax pro

A tax pro can help you estimate how your tax bills might change, advise you on how to handle inherited retirement accounts and suggest possible tax savings in the year your spouse dies, said Marianela Collado, a certified financial planner in Plantation, Fla.

Before the year ends, for example, you could take advantage of joint filing rates to make Roth conversions or taxable withdrawals from retirement funds. Also, the ability to “carry over” investment losses ends when the person who incurred the loss dies, Collado said. If your spouse was using a large loss to offset investment gains or income in subsequent years, a tax pro can advise you whether to sell some winning investments to use up that carryover.

You have a little more time to decide what to do with a house you owned with a spouse. Normally, a single person can exclude a maximum of $250,000 in home sales profits from their income. But a survivor has two years from the date of their spouse’s death to sell a jointly owned home and claim a $500,000 exclusion.

Just don’t assume that selling is the right choice, even if reducing taxes on home sale profits is your main concern, Murray said. At least half of a jointly owned home will get a favorable “step up” in tax basis at a spouse’s death. This reduces how much of the home sale is considered profit and, in turn, how much capital gains taxes might be owed. In community property states, both halves of the home get this step up.

Make sure you have access to credit

You typically can change the name on jointly held accounts to your own by notifying the institutions of your spouse’s death and submitting the death certificate. Credit cards, though, are usually a different matter.

Few credit cards are joint these days. If you have a card with your spouse, typically one of you is the primary account holder and the other is an authorized user. If you’re the authorized user, you’re technically not supposed to use the card after the primary account holder dies. When the issuer learns of the death, either from the person settling the estate or from Social Security, the account is usually closed.

Certified financial planner Patti Black of Birmingham, Ala., said her family discovered this the hard way. After her mother died, her parents’ only credit card was closed by the issuer. Black scrambled to help her 86-year-old father open a new card and transfer all the automatic bill payments that had been charged to the old card.

“My mom was a stay-at-home mom, so it was never on anybody’s radar that she would have been the primary,” Black said.

Black said had she known the account would be closed, she would have encouraged her father to get his own card before her mother died.

“It was an unnecessary hassle in a time when there were so many other things that needed to be done, and my dad was grieving,” Black said.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. This article was distributed by the Associated Press.