Dealing with the financial aftermath of losing a family member is daunting, but knowing the right steps can ease this burden.
Play the ‘Find It Game’
One of the most crucial first steps is what financial advisor Kurt Bogseth calls “the find it game.” Start by collecting any mail that may have accumulated, whether in the mailbox or on the kitchen table. This will include not only common recurring bills like utilities, but also irregular ones such as insurance premiums, which may only be billed annually. Review the deceased's checkbook for any checks they might have regularly issued, especially if they weren't inclined to use online banking.
If you're unsure of the financial situation, it might be necessary to reach out to various institutions, notifying them of the death. Bear in mind that most organizations will demand documentation such as a death certificate or legal proof of your role in managing the estate.
Clarify Your Liability
Understanding your liability concerning the deceased’s debts is paramount. This includes debts associated with joint accounts, such as mortgages or car loans. If you co-signed or have any shared accounts, you may find yourself personally responsible for those debts. If you are named the executor of the estate, you also bear the responsibility of ensuring outstanding bills or debts are paid with estate funds. Unpaid debts can lead to legal complications, as creditors can place a lien on the estate or claim against it as assets are sold.
Know Which Bills Continue and Which Don’t
After a loved one's passing, it’s essential to distinguish between bills that remain active and those that cease. Many ongoing bills, such as utilities, continue until the service provider is notified. This includes water, electricity, and property taxes. As observed by Bogseth, individuals sometimes inadvertently continue paying for a family home long after the owners are gone. Be proactive in notifying service providers to halt unnecessary expenses.
Certain financial responsibilities, however, are naturally concluded upon death. Life insurance payments, disability insurance, healthcare bills, and long-term care services cease unless otherwise specified. Knowing which bills need attention and which can be left alone can save countless headaches.
Know Some Bills May Be Forgiven
Not all debts follow the same rules post-death. For example, federal subsidized student loans are typically forgiven. However, it's crucial to verify this with the lender, as private student loans might not have the same lenient terms. Credit card debts can be tricky too, as they often depend on state laws. Understand the rules that govern marital debts in your state, as these can further complicate your obligations if you're a spouse or joint account holder.
Avoid This Common Mistake
A frequent pitfall, as highlighted by Bogseth, is using the wrong financial avenues to settle bills. Liquidating a 401(k) or IRA to cover expenses can have substantial tax implications. In contrast, life insurance benefits are often tax-free for beneficiaries, making them a more efficient option for handling immediate costs without incurring additional liabilities. Always consider the tax repercussions before tapping into retirement accounts for bill payments.
Steps You Can Take Now
Establishing a durable power of attorney ahead of time is invaluable. This document allows a trusted individual to manage financial matters for someone who may become incapacitated. It's also wise to gather and securely store all necessary documentation, including financial records and legal paperwork. Bogseth describes how having these records easily accessible made it easier to fulfill his responsibilities for his father.
Storing documents digitally can simplify the process. Keeping important files in the cloud with password protection ensures they are accessible when needed without overwhelming your family during a time of grief.
Being prepared can alleviate some of the pressures that come with post-death financial planning. Setting up a plan well in advance offers peace of mind for both you and your family.
Managing a deceased loved one’s financial affairs can be an intricate process, but with a proactive approach and a bit of organization, you can navigate this challenging time more smoothly. With knowledge and preparation, you can significantly minimize the emotional and financial strain that accompanies loss.