5 Financial Steps to Take When Someone Passes Away
Key Points
Because you may likely need to send one to each account owned by the deceased, obtaining several copies of the death certificate from the funeral home will save you time.
While there are federal requirements, state laws differ and working with a professional financial advisor is highly recommended, especially for high-net-worth estates.
There are tax benefits extended to a surviving spouse such as the capital gain homeowners’ exclusion that you’ll want to take into consideration when making decisions like selling your home.
When someone we care about passes away, everything can get chaotic quickly. If you’re responsible for someone’s estate, the logistics only add to the overwhelm. From a financial perspective, there are some important things to consider.
Request Several Copies of the Death Certificate
If you’ve recently lost someone, know that there’s one immediate piece of action to take: request at least 10 copies of the death certificate from the funeral home as you work through arrangements. We highly recommend you ask for these copies because every time you alert an account of the death, they will likely ask for the certificate. This includes banks, credit cards, retirement accounts, investment funds, etc.
Doing this at the onset, even before you know how to proceed next, can save you valuable time later on. You can also request copies of the death certificate from your local vital records office.
Retrieve and Review Estate Documents
If the deceased did any kind of estate planning prior to their death, you may already know the answers to a couple of basic questions. They’re also the first questions a financial advisor will ask upon consultation:
Is there a will? If so, we’ll want to know where the original version is and who the deceased appointed as the executor of the estate. This is the person responsible for all next step planning and tax considerations.
Is there a trust? If so, we’ll want to know who was appointed trustee.
If neither of these exist, you will likely need to engage an attorney who specializes in the probate process. It’s important to note that the laws surrounding estates differ by state.
The Estate vs the Deceased
For IRS purposes, the estate is considered a separate entity from the individual who passed away. For this reason, you’re required to obtain a tax ID number for the estate if that estate generated more than $600 in annual gross revenue. If there’s a business that also falls under your responsibility, you’ll want to obtain a new tax ID number for it as well.
Open an Estate Bank Account
You’ll also need the estate tax ID number for this next step: opening a bank account specifically for the estate. Opening an estate account is a simple way to keep the estate’s finances separate from your own. This helps in not only paying final bills but also in receiving income after death.
An estate bank account is also the easiest way to maintain transparency. When there isn’t a will and/or there are high-value assets, several people may get involved to voice opinions or concerns about the estate’s final financial reconciliations.
Notify Account Holders
There are several entities you’ll want to notify on behalf of the deceased. Each of these entities will want a death certificate.
Banks of checking and savings accounts
Credit bureaus (Equifax, Experian, and TransUnion) to prevent identity theft
Credit card companies
Social Security Administration (especially if the deceased was collecting and if someone else can now collect)
Investment and Retirement accounts
Income Upon Death
The IRS will want you to separate the income based on the date of death. From the day the person passes away, we have to start thinking about the income generated in a different way. Income generated after the date of death is taxable to the estate.
Widow/Widower Tax Benefits
Once we’ve taken care of the estate taxes, there are tax considerations for the widow/widower as well. For example, so long as the survivor remains unmarried for the time frame, they can continue to file their own taxes using the qualified widow/widower status which allows them to maintain the married filing jointly tax rates on their income tax return for 2 years after their spouse has passed away.
If they jointly owned their home and are thinking of selling, we’ll also explore taking advantage of stepping up the cost basis of the home and the capital gain homeowners’ exclusion. For up to 2 years from the date of death, the widow/widower may qualify to exclude up to $500,000 of an income gain from selling the home if filing with the qualifying widow/widower status.
Losing a loved one can be difficult and managing the estate can be stressful. High-net-worth individuals tend to have complex financial arrangements with tax implications that require an experienced professional. At Capstone, we help families through these situations and can help ease the burden in an already emotional and difficult time.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.