By Scott Snider
When a loved one dies, you may be the one responsible for making funeral arrangements and settling their finances, on top of grieving and adjusting to a new life without them. Settling the finances of a loved one can be a daunting process, and it can be difficult to know exactly what to do. Below you’ll find advice on how to pre-plan for the death of a loved one, as well as how to settle assets upon their death.
Before Death: Pre-Planning
Once you realize a loved one’s health is failing, start financially preparing for their death by doing these four things.
1. Track Expenses
You can break expenses up into two categories: recurring expenses and final bills. Recurring expenses may include mortgage payments and utilities that you’ll continue to pay until you settle the estate. Final bills may include the deceased’s medical bills, credit cards, and student loans.
2. Gather Important Documents
Gather important documents now, so you can locate them when it’s time to settle the estate and file tax returns. These documents include:
Original estate planning documents (such as a will or trust)
Certificates (such as birth, marriage, and divorce certificates)
Financial documents (such as insurance policies, previous tax returns, and retirement accounts, to name a few)
3. Update Beneficiaries
Double-check beneficiaries and update them if needed, especially if your loved one has immediate family. Certificates of deposit, bank accounts, and brokerage accounts may need to be set up with a transfer on death (TOD) designation. A TOD designation states who gets ownership of the account upon the primary holder’s death.
4. Name Durable Power Of Attorney & Estate Executor
Have your loved one name a durable power of attorney and an estate executor, if they haven't already. A durable power of attorney handles affairs while your loved one is alive. They can make decisions about health, finances, and legal matters. (1) The estate executor handles affairs upon their death.
After Death: Settling Assets
If you were able to pre-plan for your loved one’s death, settling the estate will be more straightforward. If you weren’t able to pre-plan, go back to those steps and try to gather as much information about their finances as possible.
How you'll settle the deceased’s assets depends on whether they named beneficiaries. This checklist outlines what the process looks like for assets with and without named beneficiaries.
Property without a named beneficiary may have to pass through probate—the legal process of distributing property and assets. (2) This process is initiated by the executor of the estate and takes place under the supervision of a probate court. Probate can be a lengthy process, but the four basic stages include: (3)
Filing a petition with the probate court and notifying beneficiaries
Notifying creditors of the estate and taking inventory of the property
Paying the deceased’s debts and taxes
Distributing assets to beneficiaries
After Death: Receiving Inheritance
If you receive non-qualified annuities or a retirement account as part of your inheritance, you may be confused about what to do with it. You may have the option of taking a lump sum, rolling it over to an existing account, or annuitizing the annuity. Your options also depend on whether you’re a spouse beneficiary or non-spouse beneficiary.
If you find yourself with an inheritance and you’re not sure what to do with it, seek counsel from a financial advisor. This person can help you decide which option is best for you based on your financial situation and long-term goals.
Your First Step
A financial advisor is the first professional you should contact when a loved one dies. An advisor can guide you as you settle your loved one’s estate and move through the grieving process. Even after you settle the estate, an advisor can help you adjust your financial goals. At Mellen Money Management, we specialize in walking our clients through the many milestones and transitions they face in life. To learn more about how we can help you handle your loved one’s finances upon their death, set up your free introductory phone call online today!
Scott Snider is the founder of Mellen Money Management, an independent, fee-only financial planning firm specializing in college-specific consulting and student loan repayment advice. Scott has more than ten years of industry experience and is an FPA Northeast Florida board member, member of XY Planning Network and NAPFA, and is part of the Finance Advisory Council at University of North Florida. He graduated with a Bachelor of Science in Finance from Miami University and holds both the CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Retirement Planning Counselor (CRPC) designations. He lives in Nocatee with his wife, Emily, their daughter, and their two dogs. He loves animals, spending time outside, and anything sports related! Learn more about Scott by connecting with him on LinkedIn.