Several asset transfer and practical considerations come to mind following the death of an elderly spouse or parent. The purpose of this blog is to outline those considerations and provide the reader with a framework for taking action to avoid potential issues managing a deceased’s financial affairs. This blog focuses on an elderly decedent with a surviving spouse, adult children, no debt, and normal living expenses, in Colorado. Some of the concepts discussed may apply to differing situations in other states. Tax considerations are not addressed here. You should consult with your attorney, tax professional, and financial advisor before implementing any of the ideas examined in this blog.
Transfers on Death and Probate
Probate is the legal process whereby a court, among other things, transfers title of assets from the decedent to his or her devisees (recipients named in the will) or heirs (recipients named by law). Assets including real and personal property, life insurance, and financial accounts such as bank and retirement accounts (including pensions) can be the subject of a probate proceeding. Probate can be an expensive, time consuming, and lengthy process and comes at a time when the devisees/heirs are mourning the loss of a family member or friend. However, not all wills require probate to transfer title to a decedent’s assets depending on how those assets were owned at the time of the decedent’s death.* Assets not owned by the decedent in his/her individual name are not controlled by the decedent’s will. This is where transfers on death (“TOD”) come into play.
TOD’s come in a variety of shapes and sizes – beneficiary designations, joint tenancies, and pay-on-death accounts are examples. One thing all TOD forms have in common is they transfer ownership of assets to the beneficiaries/joint tenants/account holders outside the decedent’s will and without the need for probate.** Beneficiary designations are customarily utilized to transfer retirement accounts, pensions, automobiles, and death benefits under life insurance policies. Joint tenancies are typically employed by two or more persons to hold title to real property such as your home – the most valuable asset many of us will own - with the transfer of the entirety of property going to the surviving tenant(s). Real property can also be transferred using a real property beneficiary deed. Pay-on-death accounts are commonly used to transfer bank accounts. As a practical matter, many items of personal property such as furniture and other items in your home are generally owned together by the persons owning the home (i.e., are not specified as being owned by only one of those persons).
You should consult with your attorney to ensure the appropriate TOD documents are drafted and procedures followed in accordance with applicable state law.
Other Practical Considerations
Social security benefits are a somewhat unique asset. Subject to certain rules - a detailed discussion of which is outside the scope of this blog - survivor’s benefits are available to spouses and children regardless of the existence of a will, and a TOD is not needed to keep the transfer of benefits to the surviving spouse or children out of probate. In a scenario where 1) both spouses are collecting social security benefits, 2) one spouse dies, and 3) the deceased spouse collected a greater amount of social security than the surviving spouse, the surviving spouse will, generally speaking, collect the deceased spouse’s benefit amount; provided the surviving spouse follows the Social Security Administration’s application and documentary guidelines. Application can be made with a scheduled telephone call many instances.
Elderly parents should consider executing a power of attorney (“POA”) naming one or more of their adult children or other trusted person as their attorney in fact (agent) should one parent die and the other parent (principle) not be able to manage their financial affairs. A POA can be used to add the agent to bank and other financial accounts held in the name of the principle to assist in their management and even possibly increase FDIC insurance limits on bank accounts (see below).
Life insurance policies, particularly those where premiums have been paid over a number of years, can be cashed in upon the insured’s death by the beneficiary placing a telephone call to the insurance company and answering a few simple questions. An agent under a POA can assist the elderly beneficiary in this regard. You will need to have the policy number and other policy details in hand. If a funeral home is involved, the life insurance company may contact the funeral home directly to confirm the time, date, and manner of death, while the beneficiary remains on hold. In such cases, the insurance company may not require a death certificate before mailing the benefit check. It can take as little as two to three weeks to receive the check, particularly in cases of smaller policies. Larger policies and policies with short premium payment histories may require a more comprehensive process and take longer to receive the death benefit.
Upon the death of a spouse or parent, survivors should order a half dozen or so certified copies of the death certificate. In most cases, financial institutions and others requiring a death certificate will make a copy for their file and return the original to the presenter. Regardless, it doesn’t hurt to have several originals available as there may be more than one institution that requires an original for their permanent records. Also, a surviving spouse and adult children may have a need for keeping their own original for later presentation.
Where the surviving spouse is elderly and/or not financially savvy, simplify their financial situation. 1) reduce bank accounts to no more than a checking and savings account ***; 2) reduce the number of investment institutions to one where, for example, a mutual fund is maintained; 3) liquidate investment accounts (including IRA’s)**** where funds are invested in higher risk securities and transfer the proceeds to an interest-bearing checking/savings account*** or low risk mutual fund*****; 4) consider selling the surviving spouse’s home if they are unable to safely live on their own******; 5) reduce the number of credit cards available to the surviving spouse to one; and 6) arrange to have all social security and pension payments directly deposited into the surviving spouse’s checking account to fund living expenses.
Ensure monthly bills are paid in a timely manner and attach a bill pay feature to participating accounts to ensure payment. The surviving spouse or their agent, should gather bills over a thirty-day period to determine those that recur each month. Most of these will likely be utility bills (if the surviving spouse stays in the home), a mortgage bill (if the house isn’t paid off), and possibly a credit card bill. Depending on the health of the surviving spouse, insurance coverage, and their ongoing need for medical care, medical bills of varying amounts may be received on a monthly basis. If the surviving spouse is collecting social security benefits, medicare premiums will be deducted from benefit amounts each month.
Last, but certainly not least, family members should communicate before the death of a spouse or parent to determine the location of files evidencing all financial accounts, as well as the location of safety deposit boxes, safes, other assets (such as coin collections), insurance policies, check books, deeds, and titles to personal property including automobiles, and account passwords.
This blog is not intended as an exhaustive compilation of every matter requiring attention upon the death of an elderly spouse or parent; rather it provides the reader with a meaningful framework for simplifying and managing post-death financial affairs.
* Colorado law requires that a decedent’s will be filed with the District Court in which the decedent was
domiciled within ten days of the decedent’s passing, even if no probate administration is expected.
** Probate may not be avoidable for larger estates even when TOD’s are implemented where, for example, where there are many assets of substantial value or the will is contested.
*** Paying particular attention to FDIC insurance limits per account. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Thus, a checking account in the names of the surviving spouse and the surviving spouse’s agent at a participating financial institution maintains FDIC insurance coverage up to $500,000 in certain circumstances.
**** Giving consideration to the tax consequences of liquidating such accounts.
***** Transferring the proceeds to more conservative investments is an appropriate consideration where there are enough funds available to support the surviving spouse given their monthly expenses and life expectancy.
****** Managing the surviving spouse’s living situation such as pursuing an assisted living arrangement is outside the scope of this blog.