Crucial money steps to take after a partner’s death to ease financial stress

Widows and widowers are often told not to make any major decisions for a year or more after a spouse’s death. Grief can cause you to make choices you later regret.

Some financial tasks, though, should not be postponed. Revising your budget, meeting a tax professional and securing access to credit can help protect you from unpleasant surprises later.

Your income and expenses are both likely to change after a spouse’s death, which means it is time to draw up a new budget.

A 2020 study for the Federal Reserve Bank of Chicago found income for survivors dropped an average of 37 per cent in the three years after a spouse’s death, compared with the preceding three years.

You may have to figure out how to get by without your spouse’s pay cheque or how to live on a smaller income.

Of course, you may have other resources. Depending on where you live, if you have minor children, you may qualify for additional social security benefits.

You also may have life insurance proceeds, investment accounts or retirement funds you could use for living expenses.

Figuring out how to create a sustainable income stream from these resources can be complex, so consider getting help from a fiduciary financial adviser. If money is tight, look for resources that provide free or inexpensive advice from financial planners.

While some expenses may diminish or go away, others may increase, says Jennifer Murray, a financial planner in New Providence, New Jersey, who was widowed at 43.

You may pay less for health insurance and groceries, for example, but in the US tax rates may go up, even if you have less income.

This so-called “widow’s penalty” is the result of shifting from a favourable married-filing-jointly status to a less favourable single status.

A tax expert can help you estimate how your tax bills might change, advise you on how to handle inherited retirement accounts and suggest possible tax savings in the year your spouse dies, says financial planner Marianela Collado.

Before the year ends, for example, you could take advantage of joint filing rates to make Roth conversions or taxable withdrawals from retirement funds.

Also, the ability to “carry over” investment losses ends when the person who incurred the loss dies, Ms Collado says. You typically can change the name on jointly held accounts to your own by notifying the institutions of your spouse’s death and submitting the death certificate.

Credit cards, however, are usually a different matter.

Few credit cards are joint these days. If you have a card with your spouse, typically one of you is the primary account holder and the other is an authorised user.

If you are the authorised user, you are technically not supposed to use the card after the primary account holder dies. When the issuer learns of the death, the account is usually closed.

Patti Black, a financial planner in Alabama, says her family discovered this the hard way. After her mother died, her parents’ only credit card was closed by the issuer. Ms Black rushed to help her 86-year-old father open a new card and transfer all the automatic bill payments that had been charged to the old card.

“It was never on anybody’s radar that mum would’ve been the primary [account holder],” says Ms Black. She says had she known the account would be closed, she would have encouraged her father to get his own card before her mother died.

“It was an unnecessary hassle in a time when there were so many other things that needed to be done, and my dad was grieving,” Ms Black says.

Revise your budget, seek tax advice and ensure access to credit to guard against unpleasant surprises, experts say