5 Things to do When a Spouse Passes Away with a Trust
Losing a spouse or a loved one is never easy. You’re in shock and distraught at the loss of someone very close to you and you now have to suddenly worry about funerals, services and wrapping up their affairs - all the while trying to take time to grieve and be with family. Unfortunately, due to our line of work, this is a situation we see all too often with our clients. Your first priority should always be to take time to mourn and be with family and friends. Once you have taken some personal time, there are at least 5 items to address when a spouse passes away with a trust:
1. Notify Social Security.
If your spouse was collecting social security then the Social Security Administration (SSA) will need to be notified in order to stop payments. This is also to prevent the SSA from arguing you were committing fraud by continuing to collect social security beyond their death. Often times the mortuary will notify social security for you.
A word of warning though, social security payments are not prorated. This means that if the funds are being directly deposited into a bank account, the Social Security Administration will retrieve the funds deposited for the month your spouse passed away, even if they were to pass away late in the month.
2. File an Affidavit with the County Recorder.
If both you and your spouse hold real property in your trust and both your names are on title, an Affidavit will need to be filed with the county recorder in order to update their records and remove the decedent's name from the titling. This applies to property held in joint tenancy as well. Filing the Affidavit will be required in order to do just about anything with the property: refinancing, selling, reverse mortgaging, etc. A certified death certificate will be required in order to file the Affidavit so we recommend requesting multiple original copies at the onset to prevent any future delays or headaches.
3. Have an Appraisal done of any Real Property held in Trust.
While not required to be done at the date of death, an appraisal done at this time will be helpful for future tax purposes. The reasoning is that if/when you decide to sell the property during your lifetime, capital gains will need to be calculated from the sale of the property. Upon the death of the first spouse, half of the property receives a step-up in basis to fair market value. This reduces your eventual capital gains (if any) meaning that you ultimately pay less in taxes. Often times an appraisal is required (in case you are challenged by the county or audited) to evidence the amount to which their basis was stepped-up.
However, you should be aware that homeowners can qualify for an exemption in order to offset any realized capital gains as well. Where an individual has owned a home for 2 of the past 5 years, and resided in the home for at least 2 of the past 5 years, they can exempt $250,000 of capital gains tax. This means that a surviving spouse who continues to live in a home and sells the home years after the death of their spouse, would need to realize a gain of more than $250,000 on the value of their property before paying a dollar of capital gains tax.
Even if you, as the surviving spouse, were to keep the home until your death, there is another step-up in basis to fair market value at that time. This means your beneficiaries can inherit the property at that basis and sell the home without paying capital gains taxes. Therefore, if you are adamant that you'll never sell your home during your lifetime, then you technically don't need to have an appraisal done upon the death of your spouse.
4. Update Your Estate Plan.
A well drafted Estate Plan should have safety nets built into it and therefore remain effective upon the passing of a spouse. Therefore, updating your documents may not be required right after the passing of your spouse. However, it is highly recommended to do so in order to more easily deal with third-parties (banks and insurance companies being the most difficult offenders). Documents not reflecting the current family dynamics or make-up are the most common rationales given by third-parties as to why they won’t honor estate planning documents; particularly powers of attorney. Hyperbolic? Yes, but it is common enough that we would consider such a recurring issue.
Again, this will not be required for well drafted estate plans, but you would need to keep a certified death certificate on hand to evidence to third-parties that your spouse has passed away so that alternates may then act on your behalf.
5. Meet With Your Estate Planning Attorney.
If you have an estate plan and your spouse has passed away, you should have your estate planning attorney review your documents with you so that they may spot any possible issues, help determine what the next stage in your plan should be and so that they may update their records as well. No one’s estate is the same and therefore everyone will have their own set of issues to address. Meeting with an estate planning attorney will ensure that nothing slips through the cracks.
You may learn more about administering an trust estate here or by calling our office at the number below.