Your Investing Life: Dealing with a loved one's death
March 26, 2014
Losing someone you love is one of the toughest and most overwhelming things you'll likely ever experience. In addition to the emotional toll, the list of tasks demanding your attention—including those related to your (and your family's) financial well-being—can seem daunting. It's impossible to take all the pain out of the experience. But these ideas may help make getting through the financial details a little less difficult.
Give yourself time
Keep in mind you don't have to complete every financial task at once. And, except for the most pressing things—making sure you can access money from appropriate accounts, paying living expenses for yourself and possibly others your loved one supported, closing out any outstanding debts—you also don't have to do everything immediately.
"Hold off making any big decisions about your finances," said Chuck Riley, a financial planner with Vanguard Advice Services. "It's okay to leave insurance proceeds in cash or any assets you inherit, such as mutual funds or securities, right where they are for six months or even a year. Taking that time can help you feel more prepared—mentally and emotionally—to make better investing decisions."
Things it helps to have handy
- Original copies of the death certificate
- Most recent federal and state tax returns
- Checklist for handling financial matters
- Inheriting a Vanguard account
- Change of ownership form: Inherited IRA
Track down financial documents
Having the right financial information, such as a will, insurance policies, pension details, and asset inventory can make completing financial tasks simpler.
Ideally, you (or a family member, friend, advisor, or attorney) know where your loved one stored this information, along with financial account numbers and passwords. You may have to put on your detective hat and search through papers and possessions to find the details you need.
Lean on an expert
Settling an estate—distributing any assets left over after all financial obligations have been paid—is one of those times it makes sense to hire an expert to help you understand what you need to do.
"There are some steps you need to take, regardless of the size of the estate. Consulting with a financial advisor or attorney can help you prioritize which tasks need to get done when," said Alisa Shin, a senior wealth manager with Vanguard Asset Management Services.
"Think about how much—or how little—you want to be involved in the settlement process. How much do you want or need to delegate? For example, you might want to pay an expert to handle some of the more complex tasks, such as completing and filing legal documents, while doing some of the simpler tasks yourself," Ms. Shin said.
When your loved one has a will in place, you have a document to follow that spells out his or her wishes for asset distribution. The will often notes the designated executor who's responsible for directing or performing estate-settlement tasks.
"Even if your loved one died intestate (without a will), every state has a structure in place to get you through the settlement process," Ms. Shin said. A probate court will direct division of an estate's assets, following state laws, in cases where there's no will. Generally in every state, a spouse and any children will split the estate's proceeds, with the closest blood relatives inheriting assets if your loved one was single without heirs.
Determine if you're an account beneficiary
Your loved one may have designated one or several beneficiaries—people named to inherit money from an account—for all or part of financial account balances including IRAs or insurance policies, outside a will. Beneficiaries don't have to be limited to spouses or children; close friends can be named, as well as charitable organizations if permitted under state law. However, different tax rules apply depending on whether an inherited IRA is from a spouse or another loved one.
(If you're a beneficiary of a Vanguard account, you have a range of resources available to help you. A great place to start is our webpage about inheriting a Vanguard account. You can also call our team of experts dedicated to supporting you through the process at 888-237-9045.)
Review your investing and financial strategy when you're ready
If your loved one left you a financial remembrance, when you're ready, take a look at your investing and financial plan.
"Think about what role your inheritance will play in your overall financial plan," said Mary Ryan, a financial planner with Vanguard Asset Management Services. "The portfolio part is important, but you want to think about your financial future more holistically, especially if your loved one left you a substantial sum. Don't be afraid to turn to someone you trust—whether it's a financially savvy family member, an accountant or attorney, or a financial expert—and ask questions."
Consider your loved one's lasting legacy
Making a charitable contribution in the memory of someone you loved—or even setting up a charitable account through a donor-advised fund—is one way to leave a lasting legacy that honors your loved one while benefiting others as well.
"Charitable giving can be a very special—and practical—way to pay tribute to a loved one," said Ann Gill, chief philanthropic officer at Vanguard Charitable. "During a difficult time, it can offer you the opportunity to reflect on what causes were important to your loved one and then give back in his or her honor."
Put your own (estate) house in order
Going through—or just watching—the process of settling a loved one's estate can be overwhelming. But it also gives you insight into just how important it is to take steps while you can to make the process easier for your own loved ones when you pass away.
A good place to start is by putting together a personal financial inventory. Here you can list out all your:
- Assets: Bank and retirement accounts, investments, property.
- Liabilities: Mortgages, auto loans, credit card debt.
- Insurance: Life, health, vehicle, homeowners.
- Funeral preferences: Desired funeral home, burial type, location.
- Contacts: Spouse (if applicable) or other loved ones, estate executor, financial advisors.
As you've likely realized from going through the steps of dealing with a loved one's finances after death, having a will and a plan in place can simplify things for those you care about. An estate attorney or financial planning expert can help you assemble the right pieces for your "wealth plan", regardless of its size.
"You want all your plan pieces—your estate plan, investment plan, education savings, life insurance—to work well together," said Ms. Shin. "It's not just what happens at your death or if you become incapacitated. It's about how you make sure that your goals and objectives are reached, and that your family still gets along, and people understand what it is that they're supposed to do when you're not able to tell them yourself."
- All investing is subject to risk, including the possible loss of the money you invest.
- We recommend that you consult a tax or financial advisor about your individual situation.