In the aftermath of losing a loved one, things that usually feel routine can quickly drain our emotional, mental, and physical resources. Unfortunately, this is also the time when we are faced with a litany of tasks that are anything but routine. Whether you are serving as the executor or trustee or are a beneficiary, here are some tips for making a difficult time a little easier.
What Is Urgent?
With so many things to do, it can be helpful to know what needs to happen right away and what doesn’t. Typically, the most time-sensitive matter is planning for a service and burial which can be coordinated through the funeral home and possibly a religious institution. While someone’s wishes aren’t always put in writing, you may find guidance about their last wishes in their health care power of attorney and living will.
Planning these events raises the question of who will pay the costs associated with the final arrangements. It often takes weeks or longer to access the deceased’s financial assets so you can’t necessarily count on them to cover costs right away.
If you are named as a joint owner on one of their bank accounts, you can access those dollars immediately (although adding someone as a joint owner to a bank account can have ramifications you should consider ahead of time). Being a signer on their bank account or their power of attorney won’t help, as the privileges of these roles immediately cease at the time of death.
Absent being a joint owner, heirs will typically have to pay for costs out of pocket and get reimbursed later from the estate. Considering these costs can easily exceed $10,000 and it can take months or longer to get reimbursed, this can be a strain on survivors which is one of the reasons pre-paying your funeral and burial expenses can be such a gift to your heirs.
Most financial tasks can wait until after the service is complete as most actions can’t be completed without a death certificate. It will take a couple of weeks to get the death certificate and you should ask for several copies from the funeral home (think 10 or more). You can notify the estate attorney of the passing at this time.
You may need to consult with an estate attorney to determine who the executor is and whether there is a need to go through probate, which is a settling of the estate with the courts. Assets that are titled jointly or in trust and assets that have a named beneficiary will typically avoid probate which can save you time and money.
If you are the executor, the next phase involves dealing with the day-to-day finances of the person who passed. Common tasks include notifying Social Security to stop benefits, which you can do by calling (800)772-1213, stopping any other income like pensions, canceling credit cards, cell phone contracts, prescription refills, utilities and other subscriptions or services that are no longer needed.
Any bills that need to be paid immediately, such as utility bills, car and mortgage payments, and real estate taxes again may need to be paid by heirs until they can be reimbursed from the estate. It is critical to keep good records of any expenses paid on behalf of the estate. If need be, contact the companies who are yet to be paid and explain the situation to avoid costs and penalties for late payments.
Once the death certificate is received, the executor or trustee can open an estate or trust bank account to pay bills and provide reimbursements. To get cash into this account, money must be moved from one of the deceased’s assets. Cash in a bank, brokerage or trust account might be available depending on the wording of the titling, beneficiary designation, and will. Cash proceeds from life insurance may be another resource, and if there are no liquid assets the executor may need to sell property to create cash.
After determining with the attorney what cash is available, you will need to submit a death certificate to the institution holding the assets and complete any paperwork they need to process a distribution.
Distributing the Estate
It can take several months or more to fully settle an estate and distribute the inheritance to heirs. Accounts with beneficiary designations, such as IRAs, employer retirement plans, life insurance policies, and even some bank accounts, homes, and cars can usually be handled most easily. (Side note: make sure you have beneficiaries listed on retirement accounts to avoid delays and undesirable tax consequences.) The institution can typically process distributions with the death certificate, a form or two, and instructions for how the beneficiary will be paid.
It is important for beneficiaries to understand the tax implications of receiving inherited assets. Usually, receiving cash from life insurance and bank accounts has no income tax implications for beneficiaries. Retirement accounts are a different story. You should consult with an estate attorney or financial planner to help you understand the impact of taking cash out of a retirement plan versus opening an inherited retirement account. If you receive stock via inheritance and want to sell it, there may be capital gains tax on the sales; be sure to find out the cost basis for any shares you receive.
The management and distribution of assets in a trust are entirely dependent on the language in the trust document. The purpose of the document is to spell out who gets what and when and it is the legal responsibility of the trustee to carry out these provisions. If all assets can be distributed out of trust to the beneficiaries, there may be no need to keep or maintain the trust. If assets need to be held in the trust over time, the trust will require the filing of an annual trust tax return. Trustees should seek guidance to make sure they are following the distribution guidelines and handling the trust taxes appropriately.
Filing the Final Income Tax Return and Estate Tax Return
Two tax forms may need to be filed. A final income tax return will be filed for the deceased and is due by the typical mid-April deadline for income tax returns. Taxes due can typically be paid from the estate.
An estate tax return may also need to be filed and is usually due within 9 months following the date of death. If you are a surviving spouse, work with your estate attorney to determine if you would benefit from filing a portability election, which allows you to carry over any unused estate tax exemption from your late spouse.
More than anything else, it’s important to take care of yourself and not to rush any of your decisions. Aside from the funeral service and handling of the day-to-day in and out flows, there is rarely a sense of urgency to determine what you need to do with inherited assets. These decisions could have meaningful consequences so take them one at a time and go at your own pace.
As originally published on Forbes: https://www.forbes.com/sites/danielleseurkamp/2022/07/27/i-lost-a-loved-one-now-what/?sh=3293c5491d14