Transcript

Welcome to the Life Unlimited Podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now let’s get into this week’s podcast episode. Hello and welcome to Life Unlimited with Larry Heller from Heller Wealth Management. I’m Larry’s producer Aric, and I’m here to learn along with you, the audience. Larry, how are ya?

I’m doing terrific. Aric, how are you today? I’m fantastic. I’m, uh, I’m excited to be back with you. I know that I always learned a ton. I mean, that’s all there is to it. I, I learned a ton from you and this is something new today. I kind of new.

Yeah, this is something new. I was gonna say, if you read any books, read recently, but unless you saw our  , you won’t get that little inside joke.

Larry, Larry likes to make fun of my lack of reading. I, I can read a room, I can read people, but books are not on the top of my list usually. [00:01:00] Yeah. So anyway. Alright, let’s move along, shall we, Larry?

All? I had my little fun for the day. Yeah. Good. As long as you’re enjoying yourself. That’s why I’m here. All right. So what are we talking about today?

Well, today we’re gonna talk about a un, unfortunately, a serious topic, a little bit of sad topic, but life does happen. So we’re gonna talk about. What a newly widowed spouse and important financial steps that they should really either implement or consider implementing.

So cause there’s a lot of different things that they could, you can do to make sure that you are minimizing taxes, making sure you’re taking advantage of any investment opportunities. So that’s what we’re gonna talk about today. Okay. And this is near and dear to me, Larry, quite honestly, because I had a good friend of mine pass at a very young age.

Mm-hmm. Um, leaving his widow and it was something where it was the first time we’ve really experienced that and a group of us really tried to help her through that process. There was a lot more than [00:02:00] we thought that needed to be done. So, I’m glad you’re covering this today. I think everybody needs to l you know, listening audience Here’s a thing, share those with somebody that you care about that may be a little bit older even. And like I said, he passed away at 43, so I mean, that was Wow. Suddenly. It was cancer and he battled for about two and a half years. So there was some time in there that we would help. Do you know, a few things, but mm-hmm. Once he passed, there was just a lot more that we ne we just never knew. Right. And so having a checklist or having a guide like you, I think is vitally important. So I’m, I’m really glad you’re covering this.

Right. So we’ve done a  . If you are a loss of a loved one, recent loss of a spouse, where we talk about a lot of different things and a lot of different things you should be you should take care of. So you can go to our website, go to the YouTube channel, uh, life Unlimited YouTube channel to watch some of the other ones after you’ve watched this one. So today we’re gonna talk about kind of really some. Specific advice and not general advice. And unfortunately a lot of spouses, one spouse is the [00:03:00] financial spouse and a lot of marriages and the other spouse is a non-financial spouse, so they, they do need sometimes a little bit more handholding and going through that.

But we’re gonna kind of get to some really nitty gritty type of specifics in today’s podcast. Okay, let’s do it. So let’s start with kind of step, step one, and that’s reviewing and making sure that you do what’s called the step up in basis of your inherited assets. So, just so you have an idea what, what a step up basis, let’s say you have An investment or a house or any type of property, and you wanna sell that. Now, if you had a gain on that investment or property, you may have to pay a capital gains tax. Mm-hmm. So when you die, and if you would, if you were to pass away and everything goes to your children there, there would be a stepped up in basis of all of your a, of all of your assets.

But when one spouse dies, [00:04:00] Then you do get a step up in basis for half of the accounts. So if you had a joint account, and let’s say, I’m just gonna use argument’s sake, you had an account for 500,000 and it went to a million dollars, so you not had a $500,000 gain. Now you can actually. Increase your stepped up in basis from 500,000 to 750,000.

So 50% of the, or of the original cost basis, 500,000 gets the stepped up. So now if you want to go sell, you are only paying taxes on 250,000, not on 500,000. So, A lot of things you need to do. One is updating your, letting your custodian know with all your investment accounts, they’ll most likely need a copy of the death certificate, so half of your joint assets can now be stepped up.

[00:05:00] So obviously if there were assets in just the deceased spouse names, those would be stepped up a hundred percent. But if it’s a joint asset, half of it would be stepped up. So that’s one thing to do. And then you also want, if you own a house, and a lot of times you own a value of the house sometimes you may even want to get an appraisal and mm-hmm.

If not at least. Trying to document what the current cost of the house is because you get a stepped up of half the house if you own a joint. And that can be really important. So later on now when you look to sell, the gain would be, would be offset by the stepped up and basis that you are the deceased would be entitled to.

And we’ve actually had certain. Instances where the stepped on basis was high and the value of the property, the house went down later on, but you still get the stepped up and basis at the time of death or within. [00:06:00] So that’s an important part to, to, to check is not only just your investment assets, but any pr real property that you own.

Yeah, those are great points. And that’s, that was the first thing that we learned in the situation that we were dealing with, was that we needed so many copies of the death certificate because all these different institutions needed that to, to do the things that you’re talking about, changing of accounts or step up in basis, all that stuff.

It was just really surprising. They had suggested 12 to 15 copies. I was like, why would you need that many? And then we learned, so that’s exactly, that’s perfect. Yep. So let’s go into step two. We’re gonna talk about required minimum distributions. Hmm. So if the deceased spouse was over 72, and now it’s going to 73 and 75, but for argument’s sake, now it’s at 72, the spouse must take a required minimum distribution in the year of the death if it wasn’t taken already.

And guess [00:07:00] what the penalty is if you forget to do that. Well, if I remember right, it’s 50% whether or not it’s a deceased spouse or not. Right. It’s a, it’s 50% if you just don’t take it. Exactly. It’s the same. It’s the same Exactly. Geez, that’s punishment. So you wanna make sure that you that you do that. You also have the option as a spouse of rolling it to your own IRA, and especially if you’re younger or maybe not even.

Taking the RMD yet, then you can roll it over into your IRA so you don’t have to continue to take RMDs each year. Now, if the deceased is older than you, then you may actually want to consider leaving it in. In that deceased person’s name and taking require minimum distribution. So there’s a few different planning opportunities, depending upon your situation, what your needs, what your income needs are.

Mm-hmm. But making sure that you take the RMD if they were RMD eligible [00:08:00] before the end of the year. Got it. Yeah, that’s important.

That, that’s a terrible, I, I’m sorry. It just bothers me, because you’ve already lost a spouse, you’re already going through so much and then, ah, you forgot the RMD. That’s, people aren’t thinking of that kind of stuff right then, right? Yeah.

Yeah. Yep. Especially if it happens late in the year and you don’t have a lot of time left, you’re planning on taking it in December and the person dies right around that time before you take it. You only have, literally a short amount of time before it must be taken.

Yeah, absolutely. So speaking of IRAs so. And questioning do you as a spouse, the only time you are actually able to roll an IRA over into your name, any other beneficiary of an ira, four plan has to go to the they don’t have the option. It would have to go to that beneficiary. And right now the new rules taken out over 10 years.

Mm-hmm. But by the end of 10 years, so by the [00:09:00] spouse can elect to move it, roll it over into. Their own name. So, there are different reasons why you want to do that or not. First is your spouse younger than the dis than the deceased. So maybe the spouse needs money and is under 59 and a half, and if they rolled it over into the surviving spouse name and they’re younger than 59 and a half, Guess what?

If they need to take money out of that, there’s a 10% penalty. Mm-hmm. Whereby if you left it in the the deceased name now, and then they’re, and they’re, and you need to take money out, then well, you have to take it out over 10 years. But you would need, you would avoid the 10% penalty. Got it. And again, if this spouse is younger than 72 and a half, by rolling it over into that person’s name, you’re now deferring the RMD to that person’s name.

And that person, if they’re younger, [00:10:00] may not have to take their requirement in the distribution out to age 75. And again, if the deceased was younger than this surviving spouse, then you may want to consider leaving that again, all these steps, everyone is a specific situation, and should you discuss that with your financial professional to see which one works best for you.

Yeah, that’s a lot to consider. Yes. So then there is, there is a lot of things to, you know, to, to consider. And of course, like you said, there’s also, you’re just coming off the loss of your spouse. There’s a lot of emotions in there, but there’s also a lot of financial items that need to be addressed. Yep.

So let’s talk about, let’s talk about social security. So social security, you have to notify social security when a person, when your spouse, Dies Normally the funeral home takes care of that, so the funeral home would notify Social Security. But one thing where a lot of people don’t [00:11:00] realize that social security checks received in the last month that you were alive need to be returned to Social Security, even if it was received on the last day of the month.

So you don’t get to Yeah. That’s kind of surprising. You would think the last month you were able to Yeah. You know, able to keep that. But no, that one is is needs to go back to social security. So if both spouses are collecting at the time of the death, then the widow will get. One check. So they will get, uh, the check of either the widow or the widower will get the check of the highest amount of either of the spouse.

Mm-hmm. So even if they’re returning one check, they’re still gonna get to keep a higher check. So if both were receiving it then, and the CS spouse was higher, you’ll get the difference in that one month check. But then going forward, you’ll just get the higher of the two. Yeah. If you’re not yet collecting Social Security and [00:12:00] you’re a widow, you don’t become eligible until you age 60.

So, so whether you wanna take it at 60, that’s a whole nother discussion, but you would be eligible for survivor benefits at age 60. Got it. All right. So that’s, you know, that’s, you know, that’s so, so Social security. And then there, there are certain things that have to do with with estate taxes.

So depending upon the size of your estate will depend upon whether you want to, what’s called disclaimer or not disclaim certain assets. So, so when you. When you die and you have assets in your name other than a, an account such as a IRA or 401k, which has a beneficiary, those assets would pass based upon your will to you a lot of times to maybe [00:13:00] the surviving spouse.

But let’s say you have significant assets, and I’m just gonna say over 5 million. I think right now the exclusion right now from a federal estate tax is close to 12 million for each, but it’s gonna go down in 2025. To 6 million something. And each seed is a little bit different too. So you may say, you know what?

I have enough money and I don’t want that going to my name, so therefore I’m gonna take advantage and I’m going to disclaim some of those assets to my children. Okay, you don’t have to disclaim. So one of the things you could do, and still to be able to get both sides of the exclusion, your side, which right now I said is 12 and another 12 is 24 million, you could file form 7 0 6 and elect [00:14:00] portability.

So then later on you can get this lot in the the large amount as well. So there’s some estate. Planning ideas that you need to kind of be aware of and decide if you want to do and disclaim that. So one of the reasons why you may want to disclaim is you have a, an asset that you’re not going to really need and you want to get that to the next generation.

You think there’s a lot of growth on that. So instead of it being possibly taxed by in. When you pass away, it can go to the children, which is called Generation Skipping, and we skip one year, one generation of a possible estate taxes. Hmm. So, so knowing and deciding that you have nine months after the date of death to making that decision whether you want to disclaim or not disclaim, and also filing form 7 0 6 if necessary, and electing [00:15:00] portability comes into play.

Depending upon what your net worth is, which state you live in, what the future taxe is, and also how old you are. Cuz you may have a lower estate now and it may be great to. Disclaimer because later on it may be worth a number that’s up higher than the estate tax limits. So it’s hard to kind of think like that when you’ve just, lost someone and tried to do all these different items.

But looking at each one of these specifically could end up saving thousands of thousands of dollars for you on, on taxes or estate taxes. Yeah, that’s, Again, it’s just gonna point back to working with a professional that knows what they’re doing. Right. I mean, because I would never have thought of that, you know, passing something to the kids and, and taking advantage of that, that rule.

Right now it’s just too much. I mean, honestly for some, especially like you said, somebody who’s going through something like that. Yeah. We’ll give out contact [00:16:00] information at the end of the show because they need to be able to talk to somebody who knows what they’re doing and can walk hand in hand with them through this, through this process.

Yep. So there’s. One other thing to consider, one other step is when you pass away, going back to Ira, should have mentioned this before, but, so based upon your being married, married, filing jointly, you are in a lower tax bracket. It’s really, you get penalized if you wanna look at it, or you get a better rate if you’re married than if you’re single.

Mm-hmm. So whereby the social security, if you receive in the last month, has to go back. During the year of death, you’re still allowed to file married file jointly. Even if that person died on the last day of the year, you could still file married filing jointly in that year. Mm-hmm. So one thing you may want to consider, because you’re in a lower bracket and your exclusion rates are higher, your brackets are higher, [00:17:00] you may wanna do a Roth conversion in that last year.

So, So looking at what your i r A is, what the I RRA is of of what your tax brackets are because the year after the person died, now you’re gonna be in either you, you’re gonna be in single As you have some children had a household, but you’re gonna be a single tax bracket, which is gonna be much, much higher.

So consider Roth conversions in the year of death. Okay. Yeah, that makes sense. And you’ve covered Roth conversions in previous podcasts. People can go back and, and listen to what those are about a, a ab. Absolutely. So, and the last thing is really updating the financial plan after your, after you become a widow again, like I mentioned, we, we’ve had, we have a.

Podcast both in our YouTube channel and our on, in our audio channel, where you can listen to all the steps. You can, you need to really do, when you [00:18:00] have to update your financial plan from redoing your cash flow, seeing how that works for you. And now, you know, with this possible change of social security creating changing your beneficiaries.

May and now possibly updating you will, updating power of attorneys, updating healthcare proxies deciding what to do with the home. So really going through and trying to figure that out. Not that that all that has to be done immediately following the loss of a loved one, but those are all things that should be done relatively soon.

So you now can create a financial plan, for the widow or widower. Yeah. Yeah. That’s fantastic. A lot of resources that you’ve got there. How do they reach out? How do they get more of those resources, Larry? Yeah, so you can go, you can go right onto our website@hellerwealthmanagement.com. Actually, we have a section there called Loss of a Loved One, and you can check out the loss of a loved one section there.

And [00:19:00] then you can also write on the website, you can go over to our link to our. Our blog or our podcast section. And in the podcast you can listen or watch the podcast on the loss of a loved one or, or any of them that have to do with a widow or widower. Of course, if they, somebody wants to reach out to us and schedule an appointment to discuss some of these, they can also click on the schedule, uh, call link.

And I can schedule a call myself and one of the financial planners. And finally feel free to call the office at (212) 248-3600. All right, Larry, thank you for your time. Always a pleasure. Not the easiest conversation, but a lot of great information. A absolutely. All right, and our last thank you, of course, goes to you Listing Audience.Thank you so much for tuning in and listening to the Life Unlimited podcast with Larry Heller. If you have not subscribed to the podcast yet, please click the subscribe button. I’m gonna do that again. Sorry. Had a team. If you have not subscribed to the podcast yet, please click the subscribe now button below.

This way when Larry comes out with a new podcast, [00:20:00] it’ll show up directly on your listening device. If you’re watching this on YouTube, we’d appreciate a like and a follow there as well. We humbly ask you to share this podcast, rate it and leave a review. This actually does help others find the show. Again, thank you so much for listening today.

For everyone at Heller Wealth Management, this is Aric Johnson reminding you to live your best day every day, and we’ll see you next time.