Losing a loved one is one of life’s most difficult challenges, and the process of grieving can be overwhelming. On top of the emotional toll, there are also a number of practical and financial considerations to address in the aftermath of a loved one’s passing. From managing their estate and notifying financial institutions to navigating tax implications and RMD requirements, the list of tasks can feel daunting. However, with the right support and guidance, you can navigate these challenges and take the necessary steps to ensure that your loved one’s legacy is managed with care and compassion.

When a loved one passes away, there are several financial tasks that need to be addressed. Here are some steps to take:

  1. Obtain copies of the Death Certificate: You’ll need to obtain copies of the death certificate from the funeral home or the state government. You’ll likely need several copies for various tasks, such as closing accounts and filing insurance claims.
  2. Notify Financial Institutions: You’ll need to notify the deceased’s bank, credit card companies, and other financial institutions of their passing. This will allow you to close accounts, transfer funds, and cancel credit cards.
  3. Notify the Social Security Administration (SSA): If the deceased was receiving Social Security benefits, you’ll need to notify the SSA of their passing. This will allow you to stop any payments and potentially receive survivor benefits if you are eligible.
  4. File a Tax Return: If the deceased was earning income, you’ll need to file a final tax return on their behalf. You may need to consult with a tax professional to ensure that you’re filing the return correctly.
  5. Review Estate Planning Documents: If the deceased had a will or trust, you’ll need to review these documents to understand their wishes and determine who will be responsible for managing their assets.
  6. Work with an Estate Attorney: Depending on the complexity of the deceased’s assets and estate, you may need to work with an estate attorney to navigate the probate process and distribute assets to beneficiaries.
  7. Step-up in Basis: When someone inherits an asset, such as a stock or a home, the asset’s cost basis is “stepped up” to its fair market value at the time of the original owner’s death. This means that the new owner’s cost basis for tax purposes is the fair market value at the time of inheritance, rather than the original purchase price. This can be a significant tax advantage for heirs, as it can reduce or eliminate capital gains taxes when the asset is sold.
  8. RMDs: If the deceased had a tax-advantaged retirement account, such as a traditional IRA or 401(k), the beneficiary will be required to take required minimum distributions (RMDs) from the account starting in the year after the original owner’s death. The amount of the RMD is based on the beneficiary’s life expectancy and the balance of the account.

It’s important to approach these tasks with care and compassion during what can be a difficult time. It may be helpful to enlist the help of a financial advisor or other professional to ensure that you’re taking the appropriate steps and making sound financial decisions.

Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser

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