There’s more to it than just taxes when your partner dies

Personal Finance Family Finance

Talking about money matters in life can help you avoid future grief if your partner dies

Publication date:

Jan 17, 2022 • Jan 17, 2022 • 4 minute reading time • Join the conversation Life insurance is an area of financial planning that people undervalue until it's too late. Life insurance is an area of financial planning that people undervalue until it’s too late. Photo by Getty Images/iStockphoto Files

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MONEY MILESTONES: In an ongoing series, the Financial Post examines personal financial questions related to life’s big milestones, from marriage to retirement.

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Most people are never quite ready to lose a spouse, and those who find themselves in this difficult situation face both emotional grief and numerous financial decisions as they determine their next steps.

Experts say traditional advice, such as the suggestion that the surviving spouse wait six months to a year before making major financial decisions, is no longer valid. Some money matters, such as starting the insurance claim process, require immediate attention, although other asset decisions can be delayed for extended periods if someone isn’t ready to handle them.

“I’ve had people bounce back pretty quickly and others that take a few years depending on the trauma of the situation,” says Wendy Brookhouse, a certified financial planner and founder of Black Star Wealth in Halifax. “It’s important to give yourself space to grieve.”

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She refers to it as the “space and grace” period when dealing with clients who have lost their spouses.

For those whose husband was the household money manager, it also takes a period of grace to “learn a whole new language” around finance, she said. “(Financial) concepts they suddenly hear about may not stick with them right away, and they need to work with people who help them understand things clearly before making important decisions.”

Brookhouse said life insurance is a financial planning area that people undervalue until it’s too late. Clients are often surprised by the amount of money it takes to replace a spouse’s lost income over time.

“If you had to replace a $100,000 salary in 15 years, that’s $1.5 million, which people think is way too much when it really isn’t,” she said.

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Even for the breadwinner, the loss of a spouse can mean sudden childcare costs or other household expenses that were not previously accounted for.

Some short-term financial relief can be found by taking advantage of government support (such as the Canada Pension Plan death benefit for survivors and their children), as well as benefits from the deceased spouse’s employer.

“Sometimes there are provisions to extend health and dental benefits for a period of time, especially with larger employers,” Brookhouse said.

Death and taxes

Tax implications after a spouse’s death also deserve more attention, said Keith Masterman, vice president of Tax, Retirement and Estate Planning at CI Global Asset Management in Toronto.

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For example, the assets of the deceased will often be transferred to the surviving spouse to defer taxes when it might make more sense to opt out.

“If my spouse has had a capital loss, I may want to create a profit and then write it off against the loss,” Masterman said. “There doesn’t have to be a reflexive response to always take the rollover.”

Another oft-overlooked strategy involves Registered Retirement Savings Plans (RRSPs). The deceased spouse’s estate may contribute to the survivor’s RRSP in the year of death or for the first 60 days after the end of that year. These contributions can be claimed upon the deceased person’s return, up to that person’s RRSP deduction limit for the year of death.

“Depending on the circumstances, certain strategies can help minimize the burden and maximize wealth for families,” Masterman said.

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Aside from taxes, he said it’s critical to review the estate plan when a spouse dies and make sure power of attorney is assigned.

“I know my wife and I have had that conversation about what we want to happen in our lives, but have I had that conversation with my child or cousin who is now going to take over?” he said.

Tackle difficult conversations early

In an ideal scenario, financial estate planning decisions should be discussed with the entire family well before either spouse dies, said Elke Rubach, financial advisor and founder/president of Rubach Wealth in Toronto.

“It’s about normalizing the conversation about death and money,” she said. “It may not be cheerful, but once you’ve talked about what’s going to happen and who’s getting what, it makes the process a lot easier after that.”

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Rubach said having an up-to-date will can help “spark” these difficult conversations in the first place. Then be sure to update your will when your spouse dies and appoint an executor to take it over if that person was originally your spouse.

“People forget that their children get married at some point and that also adds complexity to the mix,” she said.

Having a good financial guide that collects and allocates information accordingly can also keep surviving spouses from scrambling to figure out what goes where, Rubach said. And if they don’t offer this service, it’s time to go elsewhere.

According to StrategyMarketing.ca, a Toronto-based consulting firm, the vast majority of widows change advisors within a year of their spouse’s death because they haven’t built a trusted relationship or feel stereotypical and disrespected.

“The number of financial advisors jumping on the widow to manage the assets is just appalling,” Rubach said. “You have to be on the same page.”

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This post There’s more to it than just taxes when your partner dies

was original published at “https://financialpost.com/personal-finance/family-finance/money-milestones-how-to-deal-with-financial-matters-when-your-spouse-dies”