Estate planning after losing a loved one
My thanks to Patti Handy (www.PattiHandy.com) for conducting this interview about estate planning issues after losing a loved one. You can click on the link above for the audio.
Patti Handy: Hi and welcome to Money Rules 101. I'm your, host Patty Handy. In studio today, I am very excited to have my good friend Rob Mansour with us, and our topic of conversation is starting over after the death of a spouse. We're specifically discussing estate planning and how important that is to protect those loved ones left and to bring peace of mind for everybody.
Rob Mansour: That's right.
Patti Handy: So Rob, start us off with some of the things that you recommend in your conversations that you have with your clients.
Rob Mansour: Well, I think the first thing is that there is no rush. This is funny, sometimes I'll get a call from the client on their way to the mortuary. On their way to the funeral, and they're saying, "Hey Rob, my spouse just passed away. What should I be doing?" My answer to them is always, "You should be grieving, is what you should be doing. You just lost your husband. You just lost your wife. You don't need to be doing estate planning at this moment. Go take care of the funeral. Call me in a few weeks when things have settled down. Everything that was true the day before your spouse died will still be true a couple of weeks from now." So I always tell clients don't be hasty. Don't make rash decisions in the middle of all the emotional turmoil that you're going through.
Patti Handy: Yeah. Makes sense.
Rob Mansour: Yeah. So the first thing is you got to grieve. There is no rush. There's rarely a rush. The second thing that you might want to do is obtain death certificates, because you're going to need those to establish the death of your spouse. You can't just go to the bank and say, "My spouse died" They're not just going to take your word for it, you're going to have to present a death certificate. So that might be one of the only things that you need to do right away. Then, during this time, you need that downtime to reassess your situation. You need to kind of take inventory of all the assets that you and your husband or you and your wife had together, and start making a list of two types of assets.
There's regular assets like real estate, bank accounts, investments, and then other kinds of assets are retirement accounts, life insurance policies, things that pass by way of beneficiary. So take stock. Whatever you do, don't start moving money around, liquidating funds, calling in the IRAs, calling in the life insurance policies. Go meet with professionals first and then make your moves, because it's so much better when you're equipped with the information. I know a lot of people go into action mode right away, because that's part of the grieving process.
They defer the grieving, and instead they start moving bank accounts and distributing things, and I say, "Just take your time. Assess the situation." Now, after you've prepared an inventory of all the assets, you need to ask yourself how was title held to all those assets. Were there any assets in the name of your spouse alone? Were there some assets that you held jointly? Were there some assets with other people on them? Who are the beneficiaries of all the assets, the ones that pass by way of beneficiaries? You need to kind of ask yourself those questions first.
Are there any assets that are in a living trust? Maybe you and your spouse had a living trust together and some of those assets may be titled in the trust, in which case we may need to remove the spouse from those assets, and there is a procedure for that. If there are any assets that were only in your husband's or your wife's name, you may have a problem. Because some of those assets may exceed the $150,000 mark, which is the California limit, and you may find yourself in court because those assets were not in a trust or were not held jointly, or something like that. So we do that.
We also have to ask ourselves were there any debts owed by the deceased person? So if my wife passes away and she has $50,000 worth of hospital bills, those are my problem now. They're not personally, technically my problem, but they are the problem for the estate. But after all, my wife's estate is my estate. So I can't just throw those bills in the trash. I can't just disregard the credit card bills and all the bills that are coming in. So one of the other things that you should be doing, not only taking asset inventory, but also taking inventory of any and all debts that your spouse may have owed. If you're married, those debts belong to the community. Belong to the married couple. So you can't just walk away from those, you have to re-examine those. You may be able to negotiate some of them as well.
If you and your spouse had a prior estate plan, you need to examine what the trust says after the first death. Most living trusts for married couples will say what happens when the first person dies, and there's many variations on this. Some of it says that their surviving spouse gets to be in control. They still drive the bus until that person dies. Or it might say that the trust is supposed to split into two parts. I can't tell you how many people have those kind of trust, where it says when one person dies, the trust now splits into two portions, and a lot of people don't know that. Sometimes people did that for tax purposes, sometimes they did it because they had blended families.
There were many reasons to do that. Or some people have it because the attorney who drafted the documents didn't know what else to give them, and that's what they got. That is something that the clients need to look at. Another variation I see is it says that when the first person dies, no changes can be made to the trust. So we have to take a look at that document and see what it says is supposed to happen when the first person dies. The trust maybe still be revocable and amendable or it may not. So we have to take a look at that.
For the prior estate planning documents, powers of attorney, healthcare directive, wills, a lot of clients still have their spouse in the number one position on all of those documents. They'll say my spouse is my agent under power of attorney. My spouse can make healthcare decisions for me. What we need to do is we need to maybe revisit those documents and put other people in those roles, now that our spouse is no longer with us. Or a lot of people will only have their spouse and nobody beyond that. So they might say my husband Harry shall be my agent, but then no-one is beyond Harry. In which case, yes, it's time to probably redo those documents.
It might be important to redo the documents if they're over ten years old anyway, just because those documents are going to get older and older and older, and it might be a good idea to revisit all of that and put new people in all of those positions. Let's see here. Oh, are there any retirement accounts that your spouse had? You need to collect those IRAs, those 401ks. But don't make the mistake of liquidating them. Sometimes you'll call the IRA company and you'll say, "Oh, my husband died." They'll say, "Oh, would you like us to send you a check?" A lot of the clients say, "Yeah, sure. That sounds great," and they get this check in the mail, and what they don't realize is now there is a taxable event. That they have to pay taxes because they just got a check.
Instead, they need to do a spousal rollover. So they roll it into their own 401k or their own IRA. That's why I always tell clients to be careful about that. Then of course you want to talk with a CPA about any tax consequences, any pension benefits that you might be due, any life insurance proceeds that you might be due. You need to apply for those. Once you inherit those assets, now it's your turn to make sure you have the proper beneficiaries there. So when you get the IRA from your husband or from your wife, you need to make sure that you take the time now to designate the appropriate beneficiaries on your account.
One other thing, by the way. I think it's important. If the client is elderly, or maybe not even elderly, they're just not very good with money. I have seen a lot of people taken advantage of after their spouse dies and new people come into their lives, and I say, "Sometimes you might want to put a co-pilot with you." So let's say you do have a trust and you and your husband were handling that. It might be a good idea to put one of your children on now as your co-trustee with you. Especially if you are worried about other people coming into life and influencing you, or ... I had one client, she met a guy on Match.com and they started dating. They dated for a year, and he bamboozled her out of $300,000.
Patti Handy: Ouch.
Rob Mansour: He was a pro, and after he bamboozled her, he moved on to the next widow.
Patti Handy: Oh dear.
Rob Mansour: So from now on, my client and her son are co-trustees together. So that if a new guy ever comes along, he now not only has to go through her, but he has to go through her son as well, who's also standing guard, if you will, at the moat. So sometimes it is a good idea to name a co-trustee with you once your spouse is no longer there to assist you. But those are the kinds of things that I talk to clients about after the death of a spouse. I mean, there's much more to it than that, but those are some of the main points we cover.
Patti Handy: Yeah, those are good points and, you know, it sort of reinforces the importance of having a team with you. Whether it's a divorce, a death, or whatever it is, a life-changing event. Having a team. Having an attorney. Having a financial planner. Having a CPA. Having these professionals guide you, because you're not in a position to think, necessarily, logically when you're in the middle of this emotional, complete chaos.
Rob Mansour: Right, and you may not know all the options.
Patti Handy: Yeah. We're not specialists in law and in accounting any everything else so important. Really quickly, one thing that I made note of. You were talking about all the accounts, knowing where all the retirement accounts are and assets and whatnot. That's so important to know even before you're elderly. That should be discussed upfront so that the spouse knows where's all of our assets? I mean, the husband or wife could be killed in a car accident coming home, and if only one spouse was the money manager, that could be very dangerous. Because the other spouse has no idea what accounts are where.
Rob Mansour: It's overwhelming.
Patti Handy: It ... totally overwhelming. So it's important and it's fair for both of you to have a file of some kind with every account, every account number, current statements, so that there's no unknowns, and during that time of difficulty your child, somebody can come in and go, "Okay, where's that file? I'll take care of this," and then you can just go on from there.
Rob Mansour: That's right, and then now it's your responsibility to make sure that the new people that you're naming, your children or your siblings or whoever you're going to be naming in charge, they need to know where everything is, too. Because if something happens to you, now they're going to need to come to your aid, and you don't want them wondering what's going on, where everything is exactly.
Patti Handy: Yeah. Yeah. Great information. Thank you Rob. I know there's so much more to talk about this, and I think people will have a great resource in you for questions. How can they reach you?
Rob Mansour: Well, there's two ways. They can just pick up the phone and call the office, which is 661-414-7100. But if they really want to reach me 24/7, they can just hop on to my website, which is www.mansourlaw.com, and Mansour spelled M-A-N-S-O-U-R, the word law, dot com, and my website has tons of resources, tons of videos and articles that many people find to be very helpful.
Patti Handy: And it's all free.
Rob Mansour: And it's all free, exactly.
Patti Handy: That's a beautiful thing. All right. Thank you so much Rob.
Rob Mansour: Thanks Patti.
Patti Handy: Liked having you here.
Rob Mansour: Thank you.
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