After the death of a spouse: financial accounts and benefits

The weeks after a spouse dies bring a long list of administrative tasks. Most of the financial items are not urgent. A small number have deadlines or affect monthly income, and those are worth knowing about early.

The first weeks

Death certificates. Banks, insurers, plan administrators and government agencies generally ask for a certified copy of the death certificate. USA.gov has a starting point for dealing with the death of a loved one, including how to obtain copies.

Social Security. The Social Security Administration (SSA) has to be notified. USA.gov explains that a funeral director can report the death to the SSA if given the Social Security number, or the family can report it by phone or in person. Reports are not accepted online or by email. Benefits are not payable for the month of death, so a payment received for that month has to be returned.

Bills and income. It helps to identify which accounts pay the mortgage, utilities and insurance, and which income deposits will stop or change. Some people postpone larger decisions, such as selling a home, until the immediate paperwork is done.

Social Security survivor benefits

A widow or widower may be eligible for monthly benefits based on the deceased spouse's earnings record. The SSA's page on who can get survivor benefits says a surviving spouse can generally qualify at age 60, or at age 50 if disabled, and must generally have been married for at least nine months before the death, with exceptions such as caring for a child of the person who died. A surviving divorced spouse may qualify if the marriage lasted at least 10 years. Remarriage before age 60, or before age 50 for a person with a disability, can affect eligibility.

The age at which a survivor benefit starts affects its amount, and a survivor's own retirement benefit interacts with it. The post on spousal and survivor benefits covers this in more depth.

There is also a one-time lump-sum death payment of $255, payable to a surviving spouse or, if there is no spouse, to certain children. The SSA says the application has to be made within two years of the death.

The SSA's survivor benefits page explains eligibility and how to apply.

Retirement accounts

IRAs and workplace plans pass to the beneficiary named on the account's form, not under the will. The IRS notes that a spouse who is the sole beneficiary has more options than other beneficiaries. For a traditional IRA inherited from a spouse, Publication 590-B describes the general choices:

• Treat the IRA as one's own, either by becoming the account owner or by rolling it into one's own IRA. The account then follows the ordinary rules for owners, including the age at which required withdrawals begin and the 10% additional tax on most withdrawals before age 59½.
• Remain a beneficiary of an inherited account. Distributions made after the owner's death are on the IRS list of exceptions to the 10% additional tax, which can matter for a surviving spouse younger than 59½.

If the deceased spouse died on or after the required beginning date for required minimum distributions and had not taken the full amount for the year of death, that amount still has to be withdrawn by the beneficiary.

For a 401(k) or similar plan, the plan document sets the available choices. See inherited IRAs: the basic rules.

Pensions and life insurance

Pensions. If the deceased spouse was receiving a pension as a joint and survivor annuity, payments continue to the survivor at the percentage chosen at retirement. If a single-life form was chosen, payments generally stop. If the spouse died before retiring, the plan may owe a survivor benefit. The plan administrator can confirm what applies.

Life insurance. Claims are made to the insurer, including any group policy through an employer. The IRS states that life insurance proceeds received because of the insured person's death generally are not included in gross income. Any interest paid on the proceeds is taxable.

Taxes in the year of death and after

A final income tax return is filed for the deceased spouse, covering income up to the date of death. IRS Publication 559 explains that a surviving spouse can file a joint return for the year of death. For the following two years, a survivor with a dependent child may be eligible for qualifying surviving spouse status, which uses the joint-return tax rates, provided the other requirements are met.

Inherited property also generally receives a new tax basis. Basis is the figure used to measure gain or loss when an asset is sold. Under IRS Publication 551, the basis of inherited property is generally its fair market value on the date of death. For property that married couples owned jointly, generally half is treated as inherited. In community property states, the entire property generally receives the new basis.

Titles, beneficiaries and estate tasks

Over the following months:

• Retitle joint accounts and property in the survivor's name. Requirements differ by state.
• Update the survivor's own beneficiary forms, which often still name the spouse who died. See beneficiary designations.
• Review the survivor's will, powers of attorney and health care directives for the same reason.
• Check whether probate is required. That depends on how assets were titled and on state law. See what probate is and how it works.

Household income often falls after a spouse's death while many costs stay about the same, so a revised budget is usually part of the process once benefit amounts are known.

State laws on property and probate vary and tax results depend on individual circumstances, so an attorney or tax professional can advise on the specifics of a particular situation.