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The Ten Most Common and Most Costly Financial Mistakes in Dealing with the Death of a Spouse, Life Partner, or Any Other Close Relation

(Part 2)

Continued from…

This is the second page of our article that covers the most commonly made mistakes that can not only be made by poor estate planning, but they are mistakes family members commonly make after a loved one’s passing.

5. rrors in calculating cost basis for assets inherited from the estate. Even if the estate is not taxable, cost basis of property may get a step up in basis so that there may be minimal or no capital gain tax due when sold by the beneficiary.

 6. Deceased spouse’s will does not talk advantage of the unified credit equivalent stating a $1 million in 2002. A widow may disclaim part of an inheritance so that it may pass to other beneficiaries in order to take advantage of the unused portion of the deceased spouse’s $1 million unified credit equivalent. The unified credit is scheduled to increase from the effective exemption of $1 million to an effective exemption of $3.5 in 2009, before expiring in 2010 and being reinstated at the $1 million mark in 2011. This formal disclaimer must take place within 9 months of the date of death.

 7. Not making a careful search for all assets. Review prior year’s income tax returns. All insurance policies, all decedent’s papers, and so forth, for assets and pension plans (especially from former employers) and set up a meeting with the benefits department. You must also carefully review all mail. This is one thing people tend to discard. Some mail may look like unimportant mail – but it may in fact hold vital information that you need to know.

8. Making investments with insurance proceeds or retirement plan assets that are either too conservative or too risky. Widows or widowers many times have a distorted view of their finances once lump sum investments suddenly appear and or regular pay checks or pension checks stop coming. You have to take the proper precautions here and sit down with a financial professional to obtain a firm grip on the realities and actual situations regarding all finances. You have to have the proper understanding of your new financial situation and what it really is and which investments are appropriate to meet your current needs.

9. Withdrawing distributions out of retirement plans. This is a very common issue. IRS accounts, 401(k) or 403(b) plans, Keoghs and SEP accounts contain pretax money, which will be taxable income to a beneficiary if he or she elects to take disbursement. You need to think of this topic as such – a rule of thumb here should be that tax deferred status should be maintained as long as possible. Use other funds to pay expenses.

10. Failure to contact Social Security Administration immediately if widow or widower or deceased is already retired. A surviving spouse is entitled to decedent’s higher social security benefit, if applicable. Widow or widower’s benefits can be collected as early as age 60, or even earlier if the widow or widower is disabled.

You will need to sit down with a financial professional or estate lawyer if in any way you feel overwhelmed with any issues or topics regarding an estate. Also, take the burden off of your loved ones by creating the most detailed and specific estate planning behind that you possibly can. Each state may have different laws regarding life partner benefits as well. This in many states is a very vague area. For those of you who are in a partnership of any kind and may not be legally wed, you have to plan well especially.

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