Strategies For Surviving Spouse

OCEAN CITY — It’s not a subject anyone likes to talk about, but it is a critical one. Losing a spouse is undoubtedly painful, but when the spouse who passed away was also the one managing the family finances, it can further complicate an already difficult time, forcing the surviving partner to gather scattered pieces of the family’s financial records.

“There are many cases where one spouse or partner simply does not know where this stuff is,” says Chris Rosin, senior vice president, Platform Solution and Channel Management, Bank of America Merrill Lynch. “We’ve even had situations where the spouse doesn’t have the password to the couple’s online banking account. It’s a devastating hit to the survivor’s sense of security.”

While this is important to know for both spouses, more often than not the surviving spouse is a woman. Luckily, there is a whole host of things you can do right now to make sure that you and your spouse are better prepared for potentially having to retire without the other — from consolidating all of your information in one place to understanding the reasoning behind your family’s financial strategy. Here’s how to go about better securing your future.

The first step toward financial security is information — and both spouses need to have it. “Now is the time to gather all the legal documents, account statements, real estate deeds, insurance policies — everything you might need in the event of a spouse’s death,” says Rosin.

It’s also the time to collect all those long-forgotten rolled-over 401(k)s and IRAs, either consolidating them or putting the most recent statements and account numbers together in an accessible folder. Security codes and online passwords should be kept in a secure location that’s accessible to both spouses.

Each spouse should also have a list of contact information for all of the couple’s legal and financial professionals, including attorneys, tax advisors, insurance agents and any other experts or advisors. “Often that’s an organization thing,” says Natalie Wagner, senior vice president, U.S. Trust, Bank of America Private Wealth Management. “People mean to get to it, but then life gets hectic and they don’t.” Your financial advisor can provide you with a form, “The Essential Document,” to help you organize most of your critical information in one place.

Take the time now to ensure that both you and your partner understand the thinking behind the family strategy in terms of asset allocation, appetite for risk and whether you feel you’re achieving your goals. Remember that financial strategies are rarely static, so it’s important to know your strategy not only for the near future, but also for the longer term, and to keep tabs on its progress.

Once you’ve collected all the relevant information, do a complete cash flow analysis to identify the surviving spouse’s likely sources of income, including Social Security benefits, employee benefits and pensions, veteran’s benefits, and annuities. Your Financial Advisor can help you through two scenarios — with either spouse passing away first — to see what the survivor will need and what you can do now as a couple to safeguard against income gaps.

If you do see a shortfall coming, you can purchase additional life insurance. “At the very least, you have to make sure the surviving spouse has enough cash on hand to cover all expenses until the legal transfers have taken place, which could take weeks,” says Wagner. Same-sex couples need to take additional precautions, she adds, since the partners will not be entitled to each other’s Social Security benefits, pension plan benefits and other death benefits at the federal level, though they may be entitled to some benefits at the state level, depending on the state and on the specific pension plan. Those partners need to make sure that all wills and beneficiary information for investment accounts and trusts are up to date.

Thanks to recent tax legislation, the estate tax exemption has climbed to $5 million, with the highest federal estate-tax rate on anything above that amount at 35%, the lowest the top rate has been in decades. But those rules will remain in effect only until the end of 2012, and with the federal deficit soaring, most experts agree that the estate tax rate will likely rise. That means you should consider making the most of these tax opportunities now.

There’s no doubt that having all of your affairs in order in the event of the death of a spouse or partner is an emotionally taxing exercise. But a bit of forethought now can save a lot of unnecessary trouble during a painful period.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)