Financial Planning After a Death

The loss of a loved one is never easy. Until that deep mourning is over, it's also not a good time to make decisions with long term implications. Eventually, clarity of thought will return and it may be necessary to do some financial planning after the death of a husband, wife, relative, or close friend.

In this article, we'll be talking about some of the actions to take following a death in the family, or that of a close friend.  As part of that discussion, we'll split this topic into two parts:  Those action items requiring near-term follow-up, and those to consider over the long-term.  The working assumption here will be the reader is the one asked to organize the estate or to help get the financial affairs in order. 

Near Term Action Items

The most important thing to do in the weeks immediately following the death of a loved one is to avoid making a decision that has long term (greater than one year) implications.  Emotions will cloud thoughts and there are individuals that will take advantage of these feelings.  The most important action items in this timeframe involve gathering and organizing materials as well as applying for benefits.

Short-Term Financial Planning Checklist

While the list below is not intended to be comprehensive, it does provide direction on the types of activities to attend to, as well as processes that should be started.  Once again, the point is to begin organizing materials and start exploring benefits available to the relatives of the deceased:

  • Locate and organize financial statements such as bank accounts in addition to stock and bond information appearing in brokerage account statements.
  • Contact the Social Security Administration, inquiring about benefits that apply to family members such as a spouse or child.
  • Locate and organize retirement benefit information such as pension plans, 401(k) accounts, and annuities.
  • Begin contacting these financial institutions, asking them to update the names on statements, mailing addresses, and / or beneficiaries as appropriate.
  • Locate and organize medical benefit information, including those provided by former employers or government entities such as Medicare and Medicaid.
  • Locate and organize medical, home, automobile, life insurance policies, as well as Wills.

Longer-Term Financial Planning Action Items

Eventually, decisions need to be made that have long-term implications.  Ideally, these activities would include preparing household budgets, statements of net worth (assets and liabilities), as well as household cash flows.  Oftentimes, the death of a spouse will result in a significant decrease in the flow of money into a home.

Evaluating the inflows and outflows of money is a great way to understand what actions need to take place over time.  This can be achieved through the creation of a household budget.

Net worth is calculated by taking the total of all assets, such as bank account balances, and subtracting loans, mortgages, and other obligations such as credit card debt.  An understanding of net worth provides insights into the total money available to meet monthly obligations or to generate additional income through investments.

Contacting a financial advisor is recommended if the estate is complex or there are significant assets to be distributed to heirs.  Financial advisors can help determine the appropriate mix of growth versus income investments.  Once again, they will do this by understanding net worth, sources of household income, and monthly living expenses.

It's equally important to make sure adequate medical insurance exists.  The death of a spouse may result in the termination or reduction of certain benefits provided by former employers.  Increase coverage as necessary to fill in any insurance gaps.

Finally, it's important to become intimately involved with financial decisions.  While hiring an advisor can certainly help in the near term, it's important to understand how money is being invested or spent.

About the Author - Financial Planning After a Death (Last Reviewed on September 21, 2016)