Handling Finances after the Loss of your Spouse


If you are handling the finances after the death of your spouse, you know it is a difficult task. It takes a lot to overcome the emotional difficulties associated with the death of a beloved person. At this time, dealing with the financial matters might seem to be an added burden. If you are a surviving spouse, the most important thing is to resist the pressure to make major decisions right away. Don’t let things weigh you down. A bit of planning and structuring can help make things easier.

Treat Inherited Account as your own.

Treat the inherited account of your spouse as you own it alone. And, it works best if you want to escape unwanted hassles of tax.

What should be the first option?

Before paying any bills or distributing any assets, the survivor should review all of the deceased’s assets and liabilities. This will give a better understanding of what the surviving spouse has to work with and what needs to be addressed. You must take out your deceased spouse’s required minimum withdrawal for the year of death. You can claim the account as your own only after that mandatory withdrawal has been taken.

What if I leave the account in my deceased spouse’s name?

Well, you can do that also. All you need to do is to leave the traditional IRA (or SEP) account in your deceased spouse’s name. But, caution, this might not be the most tax-efficient way to go about an inherited IRA. On the other hand, if you want to avoid paperwork, this is the right option for you.
Is there any other problem with this?

Yes, there is as your single life-expectancy figure is used as the divisor to calculate your annual minimum withdrawal. But, if you treat an inherited account as your own, this will enable you to use a longer joint life-expectancy figure.

Which one is better for me?

The first option can be recommended since you gain and gain a lot. A bigger divisor, lower minimum withdrawal amounts and lower taxes – what more can you ask for! However, the second option has its good sides too. First, you calculate the minimum withdrawal amount for the year of death. Minimum withdrawals are calculated based on your single life expectancy for subsequent years.

How do I manage the tax affairs?

File the taxes of your late spouse for the year of his or her death. In case of a surviving spouse, the final 1040 can be a joint return. The final joint return will include the income of your late spouse and deductions up to the time of death plus your income and deductions for the entire year. You need to gather tax returns for the last several years, bank statements, stock certificates, brokerage account statements, safe deposit information, mutual fund information, and related documents. If someone other than the deceased person prepared tax returns, the preparer may have most or all of this information readily available.

How do I file the estate’s income tax?

Once the assets are determined and bills are under control, settling the deceased’s estate will be the next concern. While it is advised for survivors to appoint an attorney for guidance in settling the estate, it is not required.

The first income-tax year of the estate begins immediately after death. The year-end can be December 31 or the end of any other month that results in an initial tax period of 12 months or less. File Form 1041 by the 15th day of the fourth month after the year-end.