Personal Finance: How to help a grieving friend? Paperwork

WASHINGTON (Reuters) - Losing a spouse is one of the most stressful and sad ordeals a person can go through, but often it’s not just the personal grief that brings widows and widowers to despair -- it is the paperwork.

A mourner cries after sending off the hearse in this file photo. REUTERS/Issei Kato

The surviving spouse is often left with a mountain of medical bills and is pressured to make immediate decisions about important items including retirement plan assets and insurance policy distributions.

The bankers, brokers and agents who are pushing for those decisions may not even have the correct information about how to proceed, and those snap decisions often end up being money losers.

There are important facts to be aware of, even if they do not yet pertain to you -- a friend or close relative will likely go through this sooner or later, and if you can give her (it’s almost always a her) some sound advice about how to proceed, that can at least be as good as a box of tissues, a cup of tea and a shoulder to cry on.


-- Take your time and get help. “Grief will cloud anyone’s ability to make a decision,” says John Frisch, a Woodbridge, Virginia, financial adviser who has many widowed clients and has researched how the bereaved manage their money.

“This is not a good time to make any financial decisions that may affect her or her family for years. Any decision that can be postponed should be.”

-- Some things do need to get done quickly. Apply for death benefits from pensions, Social Security and life insurance, Frisch says. Do what it takes to keep your family’s health insurance in force, or to find another policy. In most cases, you can use COBRA to stay on your spouse’s plan. Make sure you can get your hands on enough cash to cover short-term expenses.

-- Take the life insurance money. Don’t let the insurance company hold onto it in a “retained asset account” because it may be subject to additional fees and expenses, and it may not be insured. Instead, put it in the bank while you decide, slowly and with help, what to do with it. If it is more than $250,000, the FDIC coverage limit, you can split it up into several banks.

-- Bring a buddy to meetings. You will probably have to go visit the Social Security Administration and your spouse’s Human Resources department. You will need to talk to your financial adviser, tax adviser and the life insurance company. Do not do any of this alone, even if you’re a financial whiz.

Have a friend be in the room taking notes, asking questions and backing you up. When you get home and try to remember what was said and what you have to do next, you will be glad to have the back-up. If you’re the friend, offer to go to meetings and take notes.

-- You can delay some decisions for a long time. Your spouse’s employer may be in a hurry to send you a check and clear out his 401(k) or retirement account. Don’t do it. You can often leave that money where it is for years, and you have the option to roll it over into your own IRA. Take your time deciding how to handle those assets. A wrong, rushed answer can cost you tens or even hundreds of thousands of dollars in taxes and lost earnings.

The same advice holds for deciding what to do with your spouse’s IRA. You may decide to withdraw the funds from it, or to roll them over to an IRA for you. But you do not have to rush into that -- you typically have five years to make those decisions.

-- Plan to cut your taxes. If your spouse accumulated big medical bills in the last year of his life, that could be a valuable deduction for you, according to financial planner Lyn Dippel of Columbia, Maryland. She says it may make sense to liquidate some of that IRA to pay the medical bills, because the deductions may offset the income.

Another option: Wait until January of next year to pay all of those bills; with only one income instead of two in 2011, you will get more deductions. That’s because medical expenses are only deductible to the extent they exceed 7.5 percent of your income. It’s good to call in a tax adviser to help you make those decisions before the end of the year.

-- Don’t feel badly about the money. Guilt over life insurance proceeds is another emotional cause of poor decision making in widowhood. Your spouse bought life insurance to take care of you -- don’t let conflicted feelings about your newfound wealth allow you to waste it. You will need those funds for years to come, so don’t race to spend it, give it away or invest it carelessly because you feel bad about it.

Eventually, you’ll be able to do good things with that money.

Editing by Maureen Bavdek