Don't Let Emotions Rule Financial Decisions
As you go through the grief process, it is imperative that you be conscious of your shifting emotions—anger, sadness, hopelessness, denial, depression—and not let them influence your financial decisions.
Organize Financial Records
Collect financial records such as investment and retirement accounts, vehicle titles, deeds and bank accounts, and determine what debts are owed. Check income-tax returns, checkbook records and even hiding places you know of in order to identify potential assets or liabilities.
Develop a More Long-term Budget
Revisit your emergency budget. Revise every two or three months, if necessary.
Discuss Finances with Your Family
Discuss financial changes with your immediate family. Include children who are old enough to understand that financial adjustments and sacrifices may be necessary, at least in the short-term.
You'll want to transfer ownership to your name only for all financial relationships you've held jointly with your deceased loved one. This includes bank accounts, investment accounts, loans, mortgage, automobiles, utilities and so on. You may want to obtain credit cards in your name in order to establish your own line of credit.
Postpone Planned Giving
Wait until you've designed a new financial plan and are certain you have sufficient financial resources before starting or resuming any gifting.
Park Your Insurance Benefits
In the next few weeks, you'll probably receive most or all of your life insurance benefits. What should you do with them?
- You may need some of the money to pay current or accumulated bills such as funeral expenses, or even basic living expenses. But don't spend the rest of it frivolously. You'll need this money to pay for key needs in the coming months and years. Usually the best thing to do with the money is nothing, particularly if you know little about investing.
- Don't use it to pay off the mortgage or make other major investment decisions.
- Park the funds in a money market account, short-term certificates of deposit, or short-term Treasuries. They are easily accessible, safe from market volatility, and you'll earn a modest return until you are more prepared, emotionally and financially, to make long-term decisions.
You may find yourself temporarily unable to meet some financial obligations. Contact creditors as soon as possible to explain the situation. Many will be willing to delay or even renegotiate payments.
What to Do with Retirement Accounts
Assets inside individual retirement accounts (IRAs) and 401(k) or other qualified retirement plans will automatically pass to you if you are the named beneficiary. However, it's usually best to leave the accounts alone until you can develop a long-range financial plan. Withdrawing funds too soon could result in income and penalty tax consequences, and perhaps expose the money to inappropriate investment decisions.
Leave Your Investments Alone for Now
It is tempting to make early investment decisions because of worries about the market and economy, and as insurance or other lump sum benefits arrive. However, you should always base investment decisions on your long-term needs, not temporary market or economic conditions. Your long-term needs may be changing, but take some time before deciding how those changes should affect your long-term investments.
The main reason you would want to consider changing investments early on is if some of your money is in assets you consider too risky for your comfort. However, some investments may need tending. For example, stock options owned by the deceased may need to be exercised within a year of the owner's death. You also may want to diversify some of a portfolio heavily invested in company stock, but seek professional investment advice before proceeding.
Seek Professional Financial Advice
A financial planner can help in two major ways. First, it's difficult to make rational money decisions alone in such times of stress. A planner can help you avoid making rash, and potentially costly, financial choices. Second, decisions about what to do with life insurance benefits, investments, retirement accounts and your home have major tax, estate and investment consequences that could benefit from expert advice.
Maintain Financial Control
Actively participate in decisions regarding your finances, even those recommended by professional financial advisers. Do not hand over control of your finances to friends or relatives. Listen to their advice, but remain responsible for all final decisions.
Educate Yourself Financially
Regardless of whether you use professional financial advice, take the coming months to educate yourself financially about investments and personal money management. A number of good books, magazines, Web sites and seminars are available.
Update Wills & Beneficiaries
You likely will need to revise your existing will, or get one if you don't have one. You'll also likely need to change beneficiaries on your own personal and group life insurance, retirement accounts, will, trusts, annuities, and other documents. Powers of attorney and guardianships also may need to be changed.
Review Your Life & Disability Insurance
As the sole breadwinner, adequate life insurance is critical if you have children or others who depend on you financially. You'll also want adequate disability insurance, which provides some replacement income should you become disabled to the point you can no longer work.