Should I really avoid financial decisions for the first year after my spouse dies?
One of the cruel realities you are likely to face after the death of your spouse is that you are confronted with the need to make a lot of important financial decisions. Sadly, this comes at a time when you are most vulnerable to making decisions you may later regret.
Grief itself has a physiological effect on your body. It can make concentration difficult, make you prone to forgetfulness, zap your energy or cause you difficulty with sleep. This is not a great situation in which to be making critical financial decisions.
Unfortunately, the blanket advice to not make any financial decisions for one year is not realistic. Instead, I encourage my clients to put off making unnecessary financial decisions for a year or more, and to proceed carefully with financial decisions that require immediate attention.
Decisions to Delay
Well-meaning relatives, including your grown children, may urge you to sell your home and to move closer to them.
In the throes of grief it may seem like a good idea to move. Selling your house to be with your children and your grandchildren may sound tempting and reassuring.
However, selling your home and moving away takes you from your support system — your friends, your neighbors, your co-workers, your place of worship and your volunteer work – just when you need it the most.
If you are overwhelmed by an empty house, try an extended visit with your children first before you consider selling your home.
High-cost financial products
Some financial products charge a larger commission when you make your first investment and some may charge you a fee if you later change your mind and decide to switch to another investment. Although these types of investment products may be perfectly appropriate, I generally recommend avoiding them for at least a year after your spouse has died.
Giving your money away
Nothing like the death of a loved one reminds us that people and relationships are far more valuable than money. So it is natural to feel the desire to give money to your family, friends or causes you care about. This can be especially true of money that was received from a life insurance policy and for which you may even feel guilty about receiving.
It is a good idea to take some time before giving away any significant amount of money. Few widows regret waiting 12 months or more before making a thoughtful gift. Many have later regretted gifts they made too soon after their husband’s death.
A better approach is to make giving a part of your long-term financial plan. In this way, you can continue to give generously over your lifetime to the people and causes that are most important to you.
Proceed with Caution
While there are a number of big decisions that can and should wait, there are some financial decisions that need your attention sooner rather than later.
You will need to collect on your spouse’s life insurance policy and to close his credit card accounts. Keep your monthly bills current. If you receive health insurance through your late husband’s employer, find out what you need to do now for coverage (see my post “What to do for Health Insurance if Your Husband has Died”).
Another area of concern is tax planning. The year in which your husband dies is the last year you can file a joint tax return. Since tax rates are lower for married couples, you may want to make some financial moves during the first year while you are in a lower tax bracket. Some examples are IRA withdrawals and the selling of stock that is subject to the capital gains tax.
However, if your husband was the primary wage earner in your family, your income tax rate may go down in coming years. Therefore, you may want to take the opposite strategy and defer income until the following years. If this is the case, you should not make IRA withdrawals if they can be delayed until the following year. You may want to claim an investment deduction on your tax return by selling an investment that has lost value.
I highly recommend working with a trusted financial advisor who can help you understand the potential tax pitfalls as well as the potential opportunities. By focusing only on the financial decisions that cannot or should not wait and postponing everything else, you will be far less likely to make decisions that you later regret.