Finances after death: how to plan for the future

1 min readLast updated December 22, 2023by Rachel Carey

This article takes you through what happens to your retirement savings if you or your spouse dies, and how you can adequately prepare.

Summary  

  • While we may not want to spend too much time thinking about the inevitable, it’s wise and advised to set aside time to prepare for one of life’s only guarantees.   

  • Having an estate plan means your affairs will be in order, and your family will know what to do in the event of your death.   

  • One of the most crucial elements of estate planning is creating a will. 

  • A financial advisor can help with the complex and arduous process of estate planning.  

If you’ve saved wisely during retirement, you’ve saved enough money to last for a considerable amount of time. 

This means it’s likely your savings will outlive you, meaning you’ll leave behind some money and assets once you’re gone.  

What happens to my retirement savings when I die?  

If you have a retirement plan such as an IRA or 401(k) and want your savings to pass to a family member or loved one, you must designate a beneficiary when you open your account.   

Accounts and policies that have designated beneficiaries will be passed directly to them upon your death. Your savings will not automatically pass to your loved ones without a designated beneficiary.  

While your will or trust will outline where you want your money to go, if it conflicts with your named beneficiary, the details in your retirement account take precedence. 

So, it’s important you review your chosen beneficiaries across your financial accounts to ensure they reflect your current wishes.    

What happens if my partner dies before me?  

If your partner or spouse sadly passes away and you are named as the sole beneficiary of their retirement account, it will pass to you.   

If this happens, you have several options, including:  

  • Rollover the account into your own retirement account: You must do this within 60 days of your spouse’s death.   

  • Treat the account as your own: You can name yourself as the account owner, and the standard rules of the account will then apply to you.   

  • Cash-out an IRA: You must pay all applicable taxes if you opt to receive the account balance as a lump sum.  

  • Decline to receive it: The money will then be passed to other beneficiaries.   

If you already receive spousal benefits on your spouse’s work record, Social Security will automatically switch you to survivors benefits when the death is reported.  

Do I need an estate plan?   

Estate planning involves getting your affairs in order and deciding how you want your assets to be distributed in the event of your death or if you become unable to make your own decisions.   

It’s never too early or too late to start estate planning

If you’re embarking on this journey, one of the first things you need to do is take stock. 

 List your investments, retirement accounts, insurance policies, debts, valuable items (both financial and emotional), real estate, and any other assets you can think of, and decide what you would like to happen to them. 

You should also consider who you want to handle your affairs if you can no longer do it.   

What do I need to include in my estate plan? 

One of the most crucial elements of estate planning is creating a will. 

This legally binding document should contain all your wishes and clearly state what happens to your assets after your death. 

It will also name the person in charge of your estate – your executor.    

Some people also opt to include a trust as part of their planning. This lets you put conditions on how you want specific assets to be distributed. 

You specify an individual, the “trustee,” to oversee how the assets you leave are managed for particular beneficiaries. For example, if you have young children or older relatives who cannot manage their own affairs, a trust will help them.    

Finally, it’s crucial you have some tough conversations. 

Lack of communication is one of the most common mistakes surrounding estate planning. 

Tell your loved ones your plans and explain why you have made your decisions. While it may not be the cheeriest conversation, it will help make the process smoother when you pass away.  

Despite its complexity, estate planning is extremely beneficial. You can specify precisely to whom you want to give your assets, and your wishes will be legally binding. 

It also provides reassurance that your affairs will be in order after you’re no longer here, dodging messy disputes or drama.    

As you can see, estate planning can be a complex and arduous process, so getting professional help from a financial advisor and lawyer is recommended when drawing up your wishes.   

Should I still get life insurancewhen I retire? 

Life insurance ensures your loved ones are protected financially when you’re gone.    

While not everyone requires life insurance in retirement, some decide to forgo the option once their children have flown the nest and their debts are paid off. 

Others continue their monthly premiums to help their family cover final expenses or leave some tax-free inheritance.   

As of 2022, 50% of Americans have a life insurance policy, paying, on average, $40 to $55 per month.   

In exchange for premium payments, usually made monthly or annually, your chosen life insurance provider pays out a lump sum to your family or beneficiaries when you die.   

Many different types of life insurance are available to suit various needs and lifestyles. 

One of the biggest benefits of these policies is that compared to other insurance contracts is that there are minimal limits on what your family can choose to spend the money on.   

Payouts can support your loved ones after your death, helping with anything from funeral costs and outstanding medical bills to covering inheritance and estate taxes and outstanding debt. Additionally, payouts are tax-free.   

Improper planning or lack of clarity around your wishes can lead to lengthy litigation, high costs, excess taxes, family disputes, and your assets getting into the wrong hands.   

By getting your affairs in order, you are saving your loved ones a lot of time and potential heartbreak down the line.  

Speak to an expert 

While we may not want to spend too much time thinking about the inevitable, it’s wise and advised to set aside time to prepare for one of life’s only guarantees.   

Luckily, this is something you don’t have to do alone. 

An SEC-regulated, fiduciary financial advisor can help you plan for your future and ensure your wishes are adhered to after you go.  

Matching with a financial advisor perfectly suited to meet your needs is just a few clicks away with Unbiased. 

Get started here. 

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.