How Should Assets Be Handled After a Death During the Pandemic?
COVID-19 has affected families in numerous ways and caused thousands of deaths. If your client or one of their family members passed away during this time, what should be done in terms of handling their assets?
COVID-19 has caused many of us to have an unpleasant conversation regarding a client’s passing. In some cases, the death was directly due to coronavirus, while in others, they simply passed during this pandemic. This raises the question of what should be done and what advice should be given to clients upon the passing of a loved one.
People will turn to their most trusted advisors during times of need, especially if it is a loss of a loved one. The loss itself presents emotional issues and compounded with the fact that the family has to address their assets too, it simply can cause paralysis. Reaching out to their tax, legal, or wealth advisor is usually a logical step for them to seek guidance. You will want to be prepared to assist them if you get the call. Stepping up and helping a client navigate this trying time can build goodwill and cement a lifelong relationship with them.
The primary piece of advice during times like this, especially amid the pandemic, is to not do anything rash. Do not make quick decisions on things that do not require them. It is times like these that decisions made in haste tend to be bad ones and may cause trouble down the road. You will want to convey your sympathies and make sure they know you are there to assist them throughout the entire process. It will be key to provide your advice while being empathetic and aware of where they currently are in their grieving process to guide them appropriately. Going at their speed and not yours will help throughout the process.
We will assume that your client is the executor or executrix of their loved one’s estate, making them responsible to marshal their assets, tend to them as needed, and ultimately distribute them. There are some important steps you will want to guide your client on as they work through this process.
1. Make sure they have death certificates available to provide to their loved one’s financial institutions, their life insurance company, and any others that may require one. Some will require originals and others may accept copies. Either way, a death certificate will be needed.
2. Connect with the decedent’s estate planning attorney. This will provide you with the ability to assist your client and also connect with another qualified professional that may be a good connection for you going forward. You will want the attorney involved to assure the assets are being handled properly and ultimately distributed as per the deceased wishes.
Depending on the size of the estate, you may be able to use an affidavit or small estate process. This could simplify the administrator's work and streamline the entire process if you are eligible to use it. This is something the attorney will be able to guide on as well.
3. The financial institutions which held the assets should be contacted as well. Also, they may have owned a life insurance policy, and that company would need to be notified too. This will also introduce you to bankers, wealth managers, insurance advisors, and others while making sure the entire team is working toward the goals of your client and their loved one.
Accounts that had a joint owner (Joint With Right of Survivorship), beneficiary, payable, or transfer on death designations can be handled immediately. These assets are not subject to the probate process and can be administered due to the designation of a successor owner or rightful beneficiary. Assuming the client's life insurance policy had individual(s) named as beneficiary(ies) and not the estate, they can be taken care of in a similar manner.
Non-qualified, meaning non-retirement assets, will need to be handled differently than qualified, or retirement assets. It will be important that you receive and provide the right advice in these areas, as they could be complex. It may make sense to involve the wealth advisor of the decedent in these conversations as well.
Non-qualified assets that do not have a beneficiary will require the estate administer to marshal the assets and potentially retitle them in the name of the estate. These will now be the responsibility of the executor/executrix to make sure they are being managed properly for the estate and ultimate beneficiaries. As the administrator, you are assuming a fiduciary obligation concerning the assets of the estate. You will want to make sure that the estate has sufficient liquidity for potential liabilities or obligations of the decedent.
Non-qualified assets may be entitled to a step-up in basis, and this should be reviewed. This is something that very often gets overlooked and could cost the person inheriting the assets thousands of dollars of unnecessary tax. You can add a tremendous amount of value helping them with the process.
Qualified assets will have to be handled according to the rules associated with the type of account it is coming from: for instance, an IRA or 401(k). A spouse who is inheriting these types of assets can assume ownership of them as if they were their own. A non-spousal beneficiary will either take a distribution and pay the tax today or roll over the assets into a beneficiary-designated IRA and have ten years to withdraw the funds. The tax advisor will play a key role in guiding the beneficiary on the best strategy for removing the funds in the most tax-efficient way.
4. The probate process, assuming you cannot utilize an affidavit or small estate, will be handled by the attorney. The attorney will be there to guide your client through the entire process. Once this is finalized, they will be provided with the directions on when and how to distribute the assets to the decedent’s heirs. The distribution of the assets is indicative of the estate being finalized.
The death of a loved one is always emotional, and losing someone who is in relatively good health during this pandemic can be a unique kind of stress. Getting that call about a client or a client’s family member passing can be upsetting, too. It is our job as trusted advisors to help our clients navigate these difficult times. This is our opportunity to provide a tremendous amount of value, be a support system, and make sure our clients receive the best advice possible. They are going through a vulnerable time and, as a fiduciary, it is our obligation to make sure everyone is working in their best interest to get through this while also being able to grieve.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal, and/or tax advice.
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Lawrence Sprung CFP® is the President and Founder of Mitlin Financial, Inc. He entered the financial industry in 1996 and continues to be inspired and energized by the challenge of helping his clients achieve and even surpass their financial goals.
Mitlin Financial, Inc. is an SEC Registered Investment Advisor (RIA) that prides itself on...