Author Topic: Sister about to become a widow  (Read 3234 times)

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Sister about to become a widow
« on: September 13, 2019, 11:34:40 PM »
Sadly, my sister is about to become a widow. She's 56, her husband is 69 and was well and working full time until he became ill with a sudden staph sepsis 12 days ago. His condition is dire and he's not expected to live.

I don't know enough yet to give a full case study but would appreciate any suggestions of things to be aware of.

He was not yet drawing social security and there are no minor children at home so she cannot collect widows benefits until she's 60. She would be better off if she could wait to collect at her full retirement age (he was the major wage earner and she'll get much more from his social security than she would from hers.)

She currently works two jobs and grosses about $3500 before paying  taxes month. Debts include a mortgage of $180k, approx $20k owed on a truck he purchased last year. (Her car is very old so she will probably keep the truck for now, also an emotional item for her). I think they also still owe something on a $13,000 new roof done recently

Assets include $150k life insurance policy, home equity of at least $100k, and a rental house that was her husband's home before they married years ago. The rental property has been refinanced so I don't know exactly how much equity is in it. It has a stable renter at a below market rate and rent covers most but not all associated expenses. A significant investment in time and money would be required to prepare it for sale. Her husband also has a 401k or IRA with his employer (she's not sure which and I don't know how much - I would guess no more than $100k and quite possibly much less. ).

She has good health benefits through her job with a school district. She has only worked there maybe 6 years but I presume she would have some small pension if she works until 65 ( job is very secure).

I know she can access his retirement funds even at her age if she follows the Substantially equal payments rule for 5 years. Or she could leave that untouched and use the life insurance to pay off debts and subsidize her income as needed. She'd like to apply some of the life insurance to pay down the mortgage but I'm not sure she should tie up too much of it in the house. For the time being a daughter who lives nearby and has a good job may move in with her and direct the $500 rent she has been paying elsewhere towards the mortgage instead. (They are very close).

Complicating matters are a 19 year old daughter working and living at home who has a congenital heart problem requiring good insurance coverage (possibility exists of needing a heart transplant in her 30's or 40's) although she's healthy at present.

I guess my questions are pretty vague at present, but any recommendations about things like timing of taking social security, how best to spend the life insurance, etc. would be welcome. I think she wants to keep the truck as a link to her husband, and will probably stay in her house for a few years ( although downsizing that later when she retires is definitely a possibility.)



« Last Edit: September 13, 2019, 11:37:22 PM by frugaldrummer »

NV Teacher

  • Bristles
  • ***
  • Posts: 476
Re: Sister about to become a widow
« Reply #1 on: September 13, 2019, 11:59:27 PM »
Sorry that I have nothing to offer in terms of her situation. I’ll leave that for people that are smarter than me.   Your sister is in for a tough time ahead no matter the outcome.  The fact that you are there to support her and gather information for her is a good thing.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #2 on: September 14, 2019, 12:25:38 AM »
Thank you. It's really tragic and completely unexpected. He can't recover from where he is now ( multiple strokes, endocarditis, spinal abcesses). She's amazingly strong and truly a saint. I think she'll be ok financially but I'd like to help her figure out her financial options when the time comes. It'd be nice too if she could stop working two jobs ( she works 40 hours in her primary job and 16-20 hours in her second. She was trying to get their debts paid off before he retired.)

Fortunately she's very extroverted and kind, so she has a large circle of good friends for support, plus our older brother lives in her city.

Kwill

  • Handlebar Stache
  • *****
  • Posts: 1407
Re: Sister about to become a widow
« Reply #3 on: September 14, 2019, 01:22:54 AM »
That sounds like a really hard situation to be facing. I'm sorry.

I wonder if it would be worth reaching out to HR at his employer to arrange a conversation about what the husband's retirement and health and other benefits are. It sounds like your sister is unsure about that, and it'd be good to know if there will be more medical bills or if there will be additional life insurance provided by the employer or something like that. I vaguely recall my last job in the States mentioning a small insurance policy that all employees were enrolled in that provided a year of income if you died while still working there. I don't know how common that is, but if something like that were in place, it would be worth knowing about.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8346
  • Age: 63
  • Location: The Villages, Florida
Re: Sister about to become a widow
« Reply #4 on: September 14, 2019, 06:32:23 AM »
The worst mistake widows make is taking the insurance money and paying off the house. Advise her to keep a big chunk of the money she gets for emergencies and contingencies. If there is high-interest debt, that comes next. Then she needs to take a long hard look at her expenses.

Kwill

  • Handlebar Stache
  • *****
  • Posts: 1407
Re: Sister about to become a widow
« Reply #5 on: September 14, 2019, 07:49:11 AM »
Is the tenant in the rental home a relative, or is there another special reason to be giving the below-market rent? If the rental isn't covering its own expenses, then the rent is too low. Maybe not right now in the middle of everything, but eventually, it would be good to sell the rental home in order to simplify life.

jeroly

  • Stubble
  • **
  • Posts: 129
Re: Sister about to become a widow
« Reply #6 on: September 14, 2019, 08:09:20 AM »
I'm so sorry for your sister's tragic situation.

Per the IRS:

Inherited from spouse. If a traditional IRA is inherited from a spouse, the surviving spouse generally has the following three choices:

Treat it as his or her own IRA by designating himself or herself as the account owner.
 
Treat it as his or her own by rolling it over into a traditional IRA, or to the extent it is taxable, into a:
a. Qualified employer plan,
b. Qualified employee annuity plan (section 403(a) plan),
c. Tax-sheltered annuity plan (section 403(b) plan),
d. Deferred compensation plan of a state or local government (section 457(b) plan), or
 
Treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

So, if she wants to, she can stay taking distributions without any penalty by designating it as an inherited IRA.

mistymoney

  • Bristles
  • ***
  • Posts: 317
Re: Sister about to become a widow
« Reply #7 on: September 14, 2019, 08:20:36 AM »
condolences to your sister, and to you as well. A very difficult time.

what does her monthly budget look like? does her 3500/month have any chance of covering it?

Any additional life insurance via husband's employer? It's a benefit I frequently forget about.

bacchi

  • Magnum Stache
  • ******
  • Posts: 3876
Re: Sister about to become a widow
« Reply #8 on: September 14, 2019, 08:21:51 AM »
The worst mistake widows make is taking the insurance money and paying off the house. Advise her to keep a big chunk of the money she gets for emergencies and contingencies. If there is high-interest debt, that comes next. Then she needs to take a long hard look at her expenses.

+1

Paying down the mortgage doesn't help her monthly outflow. She will still have the mortgage payment due until the ENTIRE mortgage is gone.

Having an large e-fund would be very helpful in this situation.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #9 on: September 14, 2019, 09:17:06 AM »
Quote
So, if she wants to, she can stay taking distributions without any penalty by designating it as an inherited IRA.

Does this mean that she can start taking distributions now without penalty or restrictions? And does the same hold true for a 401k? Even if her husband was not making withdrawals yet? And isn't this still restricted to the Substantially Equal Payments rule?

I'm in agreement with all of you on the house. Her income would cover expenses if she didn't have the mortgage but since the insurance wouldn't cover all of it anyway, it makes more sense to pay off the other debts and keep a large buffer for emergencies.

The tenant in the rental has been there for 12 years and caused them no problems. Considerable investment in renovating the property would be required to totally bring it up to market rent, and without her husband's handyman skills she's probably better off selling it eventually. One good reason to keep the insurance money liquid would be to have money to pay for necessary renovations prior to selling. I'm not sure if the title is in both their names or just his, and whether that makes a difference in the stepped up basis for capital gains in their non-community property state. (Whole or half).

His employer was a small business, one owner,  I doubt there were any hidden benefits or insurance but we will check. I'll make sure she gets paid for his sick days and I think if he were to linger past two weeks he would qualify for state disability insurance?

Thanks for all the thoughtful answers.




Catbert

  • Handlebar Stache
  • *****
  • Posts: 1707
  • Location: Southern California
Re: Sister about to become a widow
« Reply #10 on: September 14, 2019, 10:58:57 AM »
The biggest thing is to not be in too much of hurry to transfer and/or spend money.  I believe that jeroly is correct and that if she leaves the IRA in her husbands name she'll be able to take out without penalty b/c he's over 59.5.  But if she rushes to convert it to herself she'll pay a penalty or need to 72t substantially equal payments.  I'm not sure if 401ks work the same way.

Also talk to a tax guy...or study tax tables if that's her jam. The year in which he dies she can still file MFJ.  It may make sense to withdraw some money from IRA/401k this year at lower rate than next year when she will be filing Single.   IF she's in a community property state all the real estate value will re-set for tax capital gains purposes.  I think in non-community property states 50% of the value will re-set.

It makes no sense to pay off a mortgage or sell property until things settle down.  Cash is king.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4912
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: Sister about to become a widow
« Reply #11 on: September 14, 2019, 10:59:49 AM »
Quote
So, if she wants to, she can stay taking distributions without any penalty by designating it as an inherited IRA.

Does this mean that she can start taking distributions now without penalty or restrictions? And does the same hold true for a 401k? Even if her husband was not making withdrawals yet? And isn't this still restricted to the Substantially Equal Payments rule?

Inherited IRAs have RMDs, the minimum you can take out per year. There's no maximum. Spouses (unlike other people who inherit an IRA) also have the option to roll the IRA into their own to avoid the RMDs if they wish, but in this case it would mean your sister would need to wait until she's 59˝ to start withdrawing without penalty. My guess is she'd be better off having full access to these funds now even if it means an RMD. Same holds true with 401(k)s as far as I know.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #12 on: September 14, 2019, 11:02:02 AM »
As to whether she could live on the $3500 before taxes (not sure what her take home is) probably not with mortgage, without the mortgage I think she'd be fine. With the mortgage I think she'll need to draw on the insurance money to pay the mortgage. Paying off half the mortgage and refinancing the rest at a low interest rate could be an option but I don't know if she would qualify for the mortgage.


Dicey

  • Senior Mustachian
  • ********
  • Posts: 10665
  • Age: 61
  • Location: NorCal
Re: Sister about to become a widow
« Reply #13 on: September 14, 2019, 11:07:32 AM »
Doesn't sound like there's more than $250k equity in the home, so she should still benefit from the exclusion, even if she waits to sell it. What about the idea of eventually selling the presumably bigger house, using some of the proceeds to fix up the rental, then moving in there? Could make more sense financially. I 100% agree that using insurance proceeds to pay down the mortgage is a colossally bad idea. Hmmmm, but using a bit of the insurance proceeds to spiff up the rental might be a savvy move.
« Last Edit: September 14, 2019, 11:11:43 AM by Dicey »

SunnyDays

  • Bristles
  • ***
  • Posts: 442
Re: Sister about to become a widow
« Reply #14 on: September 14, 2019, 11:08:31 AM »
Would she be interested in moving into the rental home herself and selling/renting her current home?  Then she could have repairs done over time without a big outlay of cash all at once.  If she rented her current home, she could use the rent money to gradually do repairs, or if she sold, then the equity might cover them more quickly.  She would have to crunch the numbers to see if it makes financial sense.  Condolences to all.  Must be shocking.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #15 on: September 14, 2019, 11:53:31 AM »
Quote
It may make sense to withdraw some money from IRA/401k this year at lower rate than next year when she will be filing Single.  I

Good thought, I'll take a look at the taxes. Since I think  her income is less than half of her husband's, she might actually be better off postponing any tax consequences until next year. I believe she has a good tax guy but I'm also pretty knowledgeable (both parents were tax accountants) so I can help her evaluate the options.

No big changes at first for sure. And I agree, cash reserves are really important.

Another question - I'm pretty sure the will gives everything to my sister. But there are three adult daughters - my sister's biological daughter from her first marriage who is single and has a good income as a nurse. His biological daughter from his first marriage who is married - they're both tattoo artists and struggle a bit financially. And their adopted daughter with hypoplastic left heart is a year out of high school, working and trying to decide whether to go to college or trade school. I'm thinking maybe it would be a good gesture to give each of the girls some small inheritance (maybe on the order of a couple thousand each) which might make each of them feel remembered and ease some of the family dynamics.  (Stepdaughter has never liked my sister due to lies her mother told, and one point of friction in the marriage was that my sister was working two jobs while her husband was still subsidizing his daughter to the tune of a few hundred dollars a month - even though adult daughter was not working as much as my sister.  I'm thinking a small cash inheritance might smooth over some resentment - but too much and it negatively impacts my sister, too little and it might be taken as an insult.)

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #16 on: September 14, 2019, 12:06:29 PM »
I know they had discussed with their accountant in the past the possibility of moving into the rental home before selling to take advantage of the exclusion. With the stepped up basis on 50% it might not be worth the hassle. If it remained in his name only, I wonder if she gets 100% step up in basis even though it's not a community property state?

There's also the possibility of just using some of the insurance money to bring the house up to date and renting it at market prices. This requires her to take the risks associated with being a landlord (current tenant is problem free but could not afford the much higher rent) if renovated. This would be cash flow positive but I'd have to crunch the numbers to see if it would be worthwhile. If it is worth keeping the rental income might eventually be a cushion for her retirement, but an older house also means potential for unexpected major repairs and expenses.  One additional complicating factor is that her stepdaughter wanted to buy the house but they couldn't afford mainstream financing and my sister didn't want to get involved with holding the mortgage for them as the stepdaughter's financial skills are not the best. So selling the rental in the near future might cause bad blood. She could rent it to them but that way lies terrible pitfalls - what if she had to evict them for nonpayment? So I know my sister would rather not have financial dealings with stepdaughter and her husband unless they can qualify for a regular loan.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10665
  • Age: 61
  • Location: NorCal
Re: Sister about to become a widow
« Reply #17 on: September 14, 2019, 12:38:08 PM »
I know they had discussed with their accountant in the past the possibility of moving into the rental home before selling to take advantage of the exclusion. With the stepped up basis on 50% it might not be worth the hassle. If it remained in his name only, I wonder if she gets 100% step up in basis even though it's not a community property state?

There's also the possibility of just using some of the insurance money to bring the house up to date and renting it at market prices. This requires her to take the risks associated with being a landlord (current tenant is problem free but could not afford the much higher rent) if renovated. This would be cash flow positive but I'd have to crunch the numbers to see if it would be worthwhile. If it is worth keeping the rental income might eventually be a cushion for her retirement, but an older house also means potential for unexpected major repairs and expenses.  One additional complicating factor is that her stepdaughter wanted to buy the house but they couldn't afford mainstream financing and my sister didn't want to get involved with holding the mortgage for them as the stepdaughter's financial skills are not the best. So selling the rental in the near future might cause bad blood. She could rent it to them but that way lies terrible pitfalls - what if she had to evict them for nonpayment? So I know my sister would rather not have financial dealings with stepdaughter and her husband unless they can qualify for a regular loan.
Another reason for to consider moving into the rental. As to giving away some of the inheritance, is there a will? What does it say? (Sorry if this has been covered.) Your sister needs to put on her own life jacket first.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #18 on: September 14, 2019, 01:23:57 PM »
I believe the will gives everything to my sister. I don't think a total of $6,000 ($2,000 each) would make that much difference to my sister's security but if it made the girls feel better and smoothed relations with the stepdaughter it might be worth it. But there is the possibility that stepdaughter would just feel insulted by that small amount and begin to feel entitled to more. It might also depend on whether her father was still subsidizing her - I don't think so since she just got married but it's possible. If so, the money might ease the sting of being cut off.

SunnyDays

  • Bristles
  • ***
  • Posts: 442
Re: Sister about to become a widow
« Reply #19 on: September 14, 2019, 01:41:38 PM »
Is your brother-in-law still conscious and communicative?  If he could make his wishes known, that would be a great help.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #20 on: September 14, 2019, 01:58:49 PM »
No, he's not. But fortunately my sister had a psychic moment 3 weeks ago - she heard a voice saying "There's not much time". She thought it was referring to HER ( he was perfectly well at that time) and since he had knee replacement surgery planned for October she used that as an intro to talk to him about both of their desires for end-of-life care. So she does have peace about that.

As I said, their wills are up to date I believe and to the best of my knowledge everything goes to her but I haven't spoken to her about it yet - that's just the gist I got from past conversations.

The good news is I just looked up her house on Realtor.com and the estimated value ( it would require some cosmetic work like paint and carpet and maybe some updating to bring this price) of $561k. So she does have a nice chunk of equity in her current home.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #21 on: September 14, 2019, 02:18:56 PM »
And a quick look around shows that she could buy a smaller, newer single story home suitable for retirement within ten miles of her current location (a little farther from the city) for $350-400k, so eventually she could become mortgage free by moving a little further out and downsizing.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #22 on: September 14, 2019, 05:45:59 PM »
Or, for $725k she and her oldest daughter could go halvesies on a gorgeous house with a pool and 851 SF guest house and separate extra garage/shop and tennis court! Obviously nothing to consider now but multigenerational living could have its perks.

Sibley

  • Magnum Stache
  • ******
  • Posts: 3592
  • Location: Chicago, IL
Re: Sister about to become a widow
« Reply #23 on: September 14, 2019, 06:58:13 PM »
I haven't seen anything about debts. I don't know the rules, and they probably vary, but be careful about agreeing to pay any bills before she knows the money situation AND if she's legally obligated to pay. Especially the medical bills, those are likely to be massive. Creditors are going to do everything to get her to pay up, but research first.

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1585
Re: Sister about to become a widow
« Reply #24 on: September 14, 2019, 07:03:08 PM »
A small amount of cash isn't going to do anyone any good, is unlikely to smooth relations, and is generally a bad idea when your sister's financial situation is tenuous.

Instead, she should consider giving them keepsakes and sentimental items. She could ask them if there's any small items of their father's in particular they would like to have to remember him by.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10665
  • Age: 61
  • Location: NorCal
Re: Sister about to become a widow
« Reply #25 on: September 14, 2019, 07:05:26 PM »
A small amount of cash isn't going to do anyone any good, is unlikely to smooth relations, and is generally a bad idea when your sister's financial situation is tenuous.

Instead, she should consider giving them keepsakes and sentimental items. She could ask them if there's any small items of their father's in particular they would like to have to remember him by.
Yes to all of this.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 2910
Re: Sister about to become a widow
« Reply #26 on: September 14, 2019, 07:57:48 PM »
If I were the type inclined to be offended at not getting money in this situation, I suspect I'd be more offended to be offered $2000.

Things might get hairy with his daughter.  But that's probably not preventable, so her best recourse will be to fall back on the wishes of her husband and the girls' father, as expressed by his will and reenforced by conversations had only weeks before he fell ill.  It doesn't mean the daughter (or one of the other girls) won't freak out or making things difficult or cry foul, or any number of other things.  But it gives her solid footing for withstanding those objections, to the extent that anything will make such unpleasantness slightly less unpleasant.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #27 on: September 15, 2019, 12:49:42 AM »
My sister has good insurance through the school district she works for, and should only owe whatever the annual max out of pocket is; they may well have already met that with his previous orthopedic appointments preparing for his planned knee replacement surgery that was supposed to happen next month. And since it's Kaiser insurance there won't be any unpleasant "oh that anesthesiologist wasn't  on your plan" surprises.

Thanks for the input from everyone on the subject of a token bequest. The stepdaughter is really the only one I was worried about, but she seems to have been very appropriate during all this. I just know how grieving family members can turn on each other, especially where money is concerned.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #28 on: September 15, 2019, 09:01:26 AM »
Another question- apparently if he has a 401k one option is to convert it to a Roth IRA. Since longevity runs in our family I would normally like that option. If it had to be done in fiscal 2019 then no, because the tax hit would be based on their joint incomes and a higher tax rate. If it could be delayed to fiscal 2020, then her low in come would mean a minimal tax bite.

mistymoney

  • Bristles
  • ***
  • Posts: 317
Re: Sister about to become a widow
« Reply #29 on: September 15, 2019, 09:08:46 AM »
As to whether she could live on the $3500 before taxes (not sure what her take home is) probably not with mortgage, without the mortgage I think she'd be fine. With the mortgage I think she'll need to draw on the insurance money to pay the mortgage. Paying off half the mortgage and refinancing the rest at a low interest rate could be an option but I don't know if she would qualify for the mortgage.

ok, so if she can manage everything but the mortgage with her current salary, I think her best immediate course of action would be to bank the life insurance, use those funds as judiciously as possible, and just continue the status quo for 6 months while she gets over the worst of the shock and grief.  And see what it cost her to life, and how much she digs into the life insurance.

In her circumstances, I don't think doing anything sudden and uprooting is going to help her at all, and taking some time to settle into what her new situation and life is going to be would be worth any added expense vs taking any immediate action.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #30 on: September 15, 2019, 09:15:04 AM »
Agreed, she should definitely not make any big financial moves any time soon. She needs to get through the acute grieving process plus, if she were to decide to sell the house where they lived during their entire marriage, that would be a painful process.


frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #31 on: September 15, 2019, 09:21:21 AM »
Fortunately my sister is reasonably frugal already, btw. She's a good thrift store shopper, cooks and bakes, has always driven older cars (her husband's newer truck was a forced purchase after his very old truck was totaled in an accident).

jeroly

  • Stubble
  • **
  • Posts: 129
Re: Sister about to become a widow
« Reply #32 on: September 15, 2019, 01:09:50 PM »
Another question- apparently if he has a 401k one option is to convert it to a Roth IRA. Since longevity runs in our family I would normally like that option. If it had to be done in fiscal 2019 then no, because the tax hit would be based on their joint incomes and a higher tax rate. If it could be delayed to fiscal 2020, then her low in come would mean a minimal tax bite.
If she's looking to minimize the tax burden it might be better to roll it into an IRA first and then to do piecemeal Roth conversions yearly based on keeping income within lower tax brackets.


minimustache1985

  • Stubble
  • **
  • Posts: 196
Re: Sister about to become a widow
« Reply #33 on: September 15, 2019, 01:44:15 PM »
I’m so sorry your sister is going through this.

My dad passed when I was in college, acute cancer that moved quickly, so I observed my mom going through similar, though without a stepdaughter or child health issues.  I’ll echo the resounding advice to hold onto the insurance money and not make any big financial decisions quickly.  IF she decides to move giving up their home will be an emotional process, deciding what of his things to keep and move when he isn’t there to use them any longer is excruciating.

I also wouldn’t offer the girls $2k.  The stepdaughter will probably be offended by the amount even if it was higher, and your sister needs to take some time to get a full picture of her finances after all the cards have fallen.  If she finds that with RMDs and the insurance that she has excess she could choose to help the girls at that time, but I wouldn’t consider it at this point.  Letting them choose some sentimental items that mean a lot to them is good advice, but money doesn’t really help with grief.
« Last Edit: September 15, 2019, 03:29:50 PM by minimustache1985 »

SimpleCycle

  • Pencil Stache
  • ****
  • Posts: 904
  • Location: Chicago
Re: Sister about to become a widow
« Reply #34 on: September 15, 2019, 03:19:53 PM »
I am so sorry for your sister.  Losing a spouse, especially suddenly, is tremendously difficult.  She’ll need time and space to just deal with her grief, so I agree that she should figure out immediate needs but postpone making any major decisions.

My dad died when my mom was 59, and they also had low assets for their age but a nearly paid for house.  I was pretty worried about her financial well-being, but she was able to make some adjustments to continue living within her means.  She got a small life insurance policy, which she used to pay for the funeral and put the rest aside as an emergency fund.  I would encourage her to make choices that maximize flexibility, so that she can adjust her plan as she figures out what she wants her life to look like as a widow.

Best wishes to your sister and your family.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #35 on: September 15, 2019, 04:32:21 PM »
Agreed on maintaining flexibility. And who knows, indeed, where life might take her in a few years? She could rent her house out and move to Italy for all I know!


seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4912
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: Sister about to become a widow
« Reply #36 on: September 15, 2019, 04:46:23 PM »
Another question- apparently if he has a 401k one option is to convert it to a Roth IRA. Since longevity runs in our family I would normally like that option. If it had to be done in fiscal 2019 then no, because the tax hit would be based on their joint incomes and a higher tax rate. If it could be delayed to fiscal 2020, then her low in come would mean a minimal tax bite.

As the surviving spouse she could roll the 401(k) into her own traditional IRA. She would then have the ability to convert to Roth on her own schedule over a number of years in order to stay in a lower tax bracket. Not sure about whether it's possible to split the 401(k), rolling part into her traditional IRA to enable Roth conversions and part into an inherited IRA (no Roth conversions allowed from these, but penalty-free withdrawals are available at any age).

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #37 on: September 15, 2019, 07:39:53 PM »
Sadly, he passed this afternoon. :(

SunnyDays

  • Bristles
  • ***
  • Posts: 442
Re: Sister about to become a widow
« Reply #38 on: September 15, 2019, 09:51:10 PM »
So sorry to hear that.  Wishing you all strength.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10665
  • Age: 61
  • Location: NorCal
Re: Sister about to become a widow
« Reply #39 on: September 15, 2019, 10:05:38 PM »
That just sucks. I'm glad she has your support. Best wishes to all of you as you navigate these changes.

ericbonabike

  • 5 O'Clock Shadow
  • *
  • Posts: 86
Re: Sister about to become a widow
« Reply #40 on: September 17, 2019, 09:27:43 AM »
KISS: I'd want to keep a good chunk of the life insurance money available to me given the large amount of uncertainty in the near future.  Tying it up in a house is not a great idea in my opinion.


TL/DR:

Mortgage is 180k.
Life insurance is 150k.
She'll be in the red with her 3500 per month unless she pays off the house.

As somebody else said:  If she applied the 150k to her mortgage, that would leave 30k left.
Her mortgage payments wouldn't decrease until remainder of house was paid off (the last 30k).
Assuming her mortgage payment was ~$1000 a month (I have no idea how close to truth that is), let's say it would take ~3-4 years to get that last 30k paid off?  1000x12x(3-4) = (36000 to 48000).   6k to 18k might go toward interest, the other 30k would apply to the principle.  (note, i have no idea how close to reality that is without knowing terms of herloan).
That seems like a long time to be in the red to me.  But for those 3 or 4 years, she'd have to cover the monthly "red" amount with other money.  Let's pretend that red amount is $500 per month.  That would be $6k per year for 3-4 years.  That's like 18-24k in total.    Would she have enough other cash to close this gap over that long of period?  And at the end of that period, her cash would be more or less depleted, and she'd be very slightly in the black while she continued to work?   But is she remembering that if she's paying mortgage payment which includes escrow (insurance and taxes) that those expenses would still be need to be paid even after mortgage is paid off?

Regardless, the upside of paying the mortgage off (being very slightly in the black a couple hundred a month),  doesn't seem that significant  (i.e. being in the black in 3-4 years).
The downside of paying the mortgage off (being house poor for the next 3-4 years) and being extremely illiquid seems to be very significant. 

I would probably recommend the following:

Keep a good portion of the cash fairly liquidable.  Take 30-40k and put into a high yield money market, savings account, or even a CD ladder. 
 She can cover the monthly gap with the 30-40k for the next 5-6 years.   That would give enough time to comfortably invest in the market with a reasonably high chance of coming out ahead.  So, the remainder of that money would go into a brokerage account and buy VTI, or FZROX, or any of the other low cost total market index funds.  Some of that money could also go into a low cost bond fund.  She's in her late 50's, so maybe that's 80/20, or 70/30, or whatever allocation she would feel comfortable with.   This would allow a good percentage of her life insurance payout to increase. 

While she's still working, I might also start easing some of that money into a traditional ira, given the amount of income you are saying she has.  That will further lower her tax burden and she will be able to keep more of her take home pay. 



marion10

  • Bristles
  • ***
  • Posts: 308
Re: Sister about to become a widow
« Reply #41 on: September 17, 2019, 09:35:06 AM »
My condolences to your sister. She will need a copy her marriage certificate if she does not already have one- to get many of these benefits she will need to proved she was married.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10665
  • Age: 61
  • Location: NorCal
Re: Sister about to become a widow
« Reply #42 on: September 17, 2019, 09:41:02 AM »
My condolences to your sister. She will need a copy her marriage certificate if she does not already have one- to get many of these benefits she will need to proved she was married.
Pro tip: She will want to order multiple certified copies of both her marriage license and his death certificate asap. You won't believe who's going to ask for them.

minimustache1985

  • Stubble
  • **
  • Posts: 196
Re: Sister about to become a widow
« Reply #43 on: September 17, 2019, 11:44:53 AM »
I’m so sorry for your sister and their children and other family members- I hope his passing was peaceful and that she was able to be there.

+1 to getting multiple marriage and death certificates- places that you wouldn’t think need originals ask for them and often times take their sweet time mailing them back, if they bother to at all.  I think my mom ordered 5 and needed all of them.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #44 on: September 17, 2019, 01:46:32 PM »
Good advice on the marriage and death certificates. I guess I should order some from my marriage to my ex-husband just in case too. (Can't think of a situation where I would need it unless he dies and my social security widows benefit would be more than my own benefit, the pension plan was already QDRO'd in the divorce - anything I'm missing? He's remarried btw so his new wife would have to deal with his own stuff if he died.)

Do you order marriage certificates from the county registrar where you married?

dogboyslim

  • Bristles
  • ***
  • Posts: 428
Re: Sister about to become a widow
« Reply #45 on: September 17, 2019, 03:17:33 PM »
I'm sorry for her loss.  My father recently passed, and here are some things we experienced.  Perhaps some of these can be helpful.

1.  Keep his name on any shared bank accounts for a while.  It makes it easier for any lingering checks coming that are in his name.  You still should talk to the bank and tell them you are doing this and why.  My mom's bank actually had to convince my mom to keep him on, and wouldn't you know the next day she got a check in his name.

2.  Go to SS within 2 weeks of his passing.  This may be less of a big deal since he wasn't already drawing, but if you wait to long, then they start having to back out changes and re-do them, and that can get messy.

3.  EVERYTHING will take 3-4 times longer than you think it will.  Get ready to wait.

4.  Take a small amount of money and do something for herself.  Then assess the budget.  Make sure you can keep living without significant changes for a while.  Then just live for a while.  My mom couldn't handle major changes in her life beyond his passing.  She went from full-time caregiver for 2.5 years to nothing. (her words).  You need some time to heal.  Do that if you need to prior to moving on.

5.  Remember to grieve.  Spend time with family and friends, but also spend some time alone.  It will be a while before you are anything approaching normal.  As an example, my mom broke down in tears at a restaurant.  We sat down with our food and I saw her look around the room and then totally break down.  She was looking to see where dad was.  This is not the time to make major changes if you don't have to.

6.  Much of the work that must be done is with people in bureaucratic positions.  Do not get mad at the life insurance person that asks if the death was a suicide.  Its just a question on the claim form they have to check.  Just answer the questions and move on.  They don't know you and don't care about you, but you have to go through them to get what you need.  Answer their questions and complain to your friends how insensitive they are later.  Yelling at them and slamming the phone down will not get you your life insurance check any sooner.

7.  Perhaps most important.  Don't assume your friends know what they are talking about.  My mom got some seriously bad advice that I had to counter, including the "pay down the mortgage but don't pay it off leaving you with no cash and the same cash flow obligations."  Listen and nod, but check with a professional that you trust, especially as it relates to the tax implications of IRAs etc.  My mom's financial adviser had some of the rules incorrect.  I showed her the IRS publications showing he was wrong and told her to fire him.  She did, but now she's asking me everything and I'm no professional.

I hope these will help you, and if not, it was a bit therapeutic for me to write.  Good luck to your sister.  I will pray for her & family.

GizmoTX

  • Handlebar Stache
  • *****
  • Posts: 1377
Re: Sister about to become a widow
« Reply #46 on: September 17, 2019, 03:54:21 PM »
It's so crushing to have to go through all this, especially when it's not expected.

At your earliest opportunity, check sister's powers of attorney for health & financial decisions, & the executors & beneficiaries in her will. My brother lost his spouse to a massive stroke a year ago & only then realized that he was suddenly without health documents & will because they had only named each other as POA & executor. For each document, successors should be named in case the primary cannot serve. So on top of the grief, he had to meet with an attorney ASAP to remedy this, as he has substantial health issues (& expected to go first).

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #47 on: September 17, 2019, 05:39:02 PM »
Thanks for the practical advice dogboyslim - luckily she's a writer at heart so writing will definitely be a place she will go. I will also talk to her about financial stuff, maybe even work it out to be on speakerphone with her and her financial guy if she wants me to be.

GizmoTX, good advice about getting her own POA and such changed - her eldest daughter will be her choice, I'm sure. And I wouldn't have thought about leaving his name on the checking account - good practical advice.




calimom

  • Pencil Stache
  • ****
  • Posts: 974
  • Location: Northern California
Re: Sister about to become a widow
« Reply #48 on: September 17, 2019, 06:00:25 PM »
Very sorry for your sister and family's loss, frugaldrummer. You're a good sister to help out during this time. There is some really helpful advice on this thread, particularly involving retirement accounts.

When my own husband died (in a car accident), I had lots of people coming at me with all kinds of ideas and suggestions. While much of it was useful, it was really all I could do to just get up every day and take care of my young children. While I did buy a house and move early on, the life insurance proceeds just went into a money market account until I could trust myself with making investment decisions.

Regarding the youngest daughter and her illness, she may be eligible for disability under her father's SS account. Your sister herself my elect to collect on his account at age 60, but sounds like she is working and may well continue. I didn't see it mentioned, but there is a small $255 death benefit. If they have a credit union, there's a chance there's a death benefit as well. Every little bit helps, right? Good points above on keeping the joint bank account active for awhile. No rush/need on changing utilities, but the mortgage company may at some point require her to qualify on her on, or not. And yes, multiple copies of the DC should be ordered. Insurance, and some other institutions will not accept photocopies.

Wishing all the best. It's really a rough ride.

frugaldrummer

  • Pencil Stache
  • ****
  • Posts: 678
Re: Sister about to become a widow
« Reply #49 on: September 17, 2019, 06:54:50 PM »
Quote
Regarding the youngest daughter and her illness, she may be eligible for disability under her father's SS account

She's not disabled at present - she works as a barista. Fortunately she had an unusually good outcome from her surgical repair as a toddler, and has few limitations at present. It's more the long-term possibilities - the unusual circulation that results from repair of her particular heart defect will eventually wear on her lungs and liver. I know that qualifying for social security disability is very difficult, and unless she becomes disabled before age 22 (hopefully not) she would not qualify to draw SSDI based on her father's social security, from what I'm reading. Good to keep in mind though if she has more problems before age 22.  And I suppose my sister can always ask when she goes to the social security office.