What to Do After a Loved One Dies: A Step-by-Step Guide
“That’s not what he told us”
This was said from a daughter of a decedent father.
The will stated that one daughter of the three, was to receive everything & the other two daughters received nothing.
This put the daughter (who was set to receive everything), who was also the executor of the estate (controlling administration duties) in a pickle & the two other daughters feeling betrayed & angry.
Leaving them feeling that they should have done more to be involved.
& the truth is:
They could have.
But it’s a hard & potentially awkward conversation that no one wants to have.
The father may have said and wanted his estate to go to all three daughters equally but that’s not how the estate documents were drafted.
Dealing with death is hard & dealing with the financial implications of death makes things that much more complicated.
There’s a tendency to start thinking about what happens after death… after death.
This will only result in more pain & suffering.
As tough as it may be, the steps you take prior to death will both help you become more confident & ease the uncertainty after passing.
As we prep before someone passes, a first step I like to consider is creating a net worth statement.
List assets such as:
Checking/savings/money market/CD/Series EE bonds
Brokerage/trust accounts
Annuities
Traditional/Roth IRA
403b/TSP/401k/457 accounts
Deferred compensation, cash balance plans
ESPP, ESOP, etc.
Homes/rentals/land
Vehicles, jewelry, artwork, other personal items
Business interests
Life insurance payable
Contrast this with debts of the decedent:
Mortgage
Auto loan
Personal/student loans
Credit cards
Business debt
Medical debt
Once you have a list of everything included in the gross estate, I’d ask:
What are your wishes for who gets what upon your passing? (this can be percentages)
Once we have a list of people, I’d ask:
Are you comfortable with your beneficiaries receiving everything outright or would you like to place additional controls on how they receive the assets?
This question gets at whether a revocable trust would make sense - which allows for control from the grave.
If you’re someone who has an estate value of $13.2M, then you may want to consider the use of irrevocable trusts which will help avoid the 40% estate tax on assets above this level - but this is beyond the scope of what I’d like to discuss today.
Once you have a good understanding of who gets what, you’ll want to align the existing assets with those wishes.
If you don’t have the capacity to do this yourself, you will want to have a durable power of attorney to allow a specific individual to make financial decisions on your behalf.
With this taken care of, the actions to be taken from this point forward are to avoid having more assets subject to probate.
Probate is the legal process to administer a decedent's estate.
What important to note here is:
The majority of your assets can pass to their appropriate beneficiary without having to go through probate.
You can avoid probate through:
Joint asset title
Payable on Death (POD) on checking/saving/money market.
Transfer on Death (TOD) on brokerage assets
Beneficiary designation on Traditional/Roth IRAs & employer sponsored retirement plans (401k/403b/457/TSP, deferred comp plans, ESPP/ESOP, annuities, life insurance, cash balance plans, etc.)
Revocable/irrevocable trusts (being sure to name assets in trust name or making the trust the beneficiary of specified assets)
It is possible for an estate to avoid probate entirely but the decedent will likely want to have a trust to ensure personal property, artwork, jewerly, etc. can be included appropriately.
A Will can have a personal property memorandum but this itself doesn’t avoid probate.
Provided your probated estate is small enough defined by the state you live in, you could file a small estate affidavit to claim the property without having to go through probate.
This means that all assets noted above can be passed prior to having to formally go through probate.
Avoiding probate means:
More privacy over estate
A faster transition of assets
Reduced conflict in probate courts
Reduced costs through reducing the probated estate.
Flexibility of how assets are distributed (due to above planning tools)
This is the pre-planning that you’re looking to do.
Once completed (congrats!), next steps from here are to monitor this over time as estate wishes can change.
Once death occurs - the second round of work (and paperwork) begins.
Assuming you’ve taken the above steps to prepare for passing - you’ll have an idea of where asset, debt, and estate document locations - which is half the battle.
As you begin, consider:
Obtaining death certificates - you may need multiple original death certificates, so keep this in mind.
How will pets, if any, be cared for?
Notify friends and family
Grief the passing of your loved one.
I recommend keeping some documentation of what’s going on - I like one google document for this.
From here you’ll want to be mindful of:
Handling mail & ongoing bills (canceling what you need to) - be sure you don’t need anything from the decedent's phone before turning it off. If you’re not living in close proximity, you could notify the post office to have mail forwarded to your address (with a death certificate and appropriate paperwork)
Gathering estate planning documents (will & trust)
Once you have the estate planning documents, it’s best practice to meet with the professionals of the decedent to help guide you, this would be:
Estate planning attorney
Financial planner
Accountant
These parties will be able to assist you with what to do & the necessary steps to take & who to contact.
Your pre-planning will help you know all information of existing assets and institutions who hold those assets to begin making calls - if not, the descendants professional team will be able to clarify that for you.
Next steps involved at this stage in the process would be:
Canceling social security (if the decedent was collecting) note: any claimed social security benefits after the decedent has passed will have to be paid back.
Canceling any pension received - if you’re unsure, you’ll want to ask about survivorship of the pension for the spouse - if so, what percentage of the decedent's benefit? And whether there is a cost of living adjustment on the survivorship benefit.
At this point, it’s a good idea to notify some other important parties:
Call the three major credit unions (Experian, TransUnion, and Equifax) and let them know that your loved one has passed. Sadly, identify theft can occur after death - this only further complicates matters.
Contact the IRS - your accountant can assist here & a death certificate may be something you want to send with your final tax return.
Contact the DMV - this is best practice to prevent identity theft to remove the decedents drivers license from active DMV records.
After this, there’s a couple final things to round out:
Taking final Required Minimum Distributions (RMDs) if applicable. Meaning, if the decedent passed December 31st and they had not taken RMDs for that year, you’ll have to take that RMD for them - which will be included on their final tax return.
Beneficiaries of the qualified accounts will now also have to take RMDs - which depend on your relationship to the decedent (the SECURE Act made this entirely complicated - I wrote about that separately that you can read HERE).
Obtain date of death fair valuation for step up in basis assets.
This would be for all assets but this is most important for taxable brokerage accounts, real estate, and land because these taxable assets as heirs who inherit these assets can sell assets from the decedent and pay nothing in taxes (this becomes valuable when there’s a large capital gain that can be avoided - this is a common tax planning strategy when transferring assets from one generation to the next).
The pain of loss is inevitable but the burden of managing the details doesn’t have to be.
Planning ahead may feel difficult, but it’s a gift to yourself and those you care about.