No one likes to think about losing a spouse, parent, or other loved one. Unfortunately, when a death occurs, families are often expected to make important tax, financial, and legal decisions while they are grieving.
During this difficult time, many people simply do not know where to begin—especially when the person who passed away handled the household finances, taxes, investments, or business matters.
That is why Rae’s Accounting has created a Tax & Financial Checklist After the Loss of a Spouse or Parent. This resource is designed to help families understand what information may be needed, which organizations should be contacted, and which decisions should not be made without professional guidance.
Why You Should Prepare Before a Loss Occurs
The best time to organize important financial information is before your family needs it.
Consider keeping the checklist with your:
- Recent tax returns
- Will and trust documents
- Insurance policies
- Bank and investment information
- Retirement-account records
- Property and business records
- List of professional advisers
- Instructions for accessing important financial information
You should also make sure your spouse, adult children, executor, trustee, or another trusted person knows where these documents are located.
This does not mean sharing every password or account detail unnecessarily. It means making sure the appropriate person knows how to locate the information and whom to contact when the time comes.
What Must Be Addressed After a Death?
Every family’s circumstances are different, but the following areas commonly require attention.
Gather Important Documents
The family or personal representative may need certified death certificates, prior tax returns, estate documents, bank statements, retirement-account information, property records, business documents, and insurance policies.
Do not discard financial records simply because an account has been closed or an asset has been transferred. These records may be necessary to prepare tax returns, establish property basis, or administer the estate.
Notify the Appropriate Organizations
Depending on the circumstances, notifications may need to be made to:
- Social Security
- Current and former employers
- Banks and investment firms
- Retirement-plan administrators
- Life insurance companies
- Credit bureaus
- The Department of Veterans Affairs, when applicable
- The local commissioner or supervisor of elections
Do not assume the funeral home will notify every necessary organization. For example, families may need to contact the local election office directly to request cancellation of the deceased person’s voter registration.
Review Bank Accounts Before Closing Them
Do not immediately close joint bank accounts or make major account changes without first consulting the financial institution and the appropriate tax or legal professionals.
Pending tax payments, refunds, pension deposits, Social Security deposits, and automatic payments may still be connected to the account. Closing it too quickly could create unnecessary complications.
Prepare the Final Individual Tax Return
A final individual income tax return may be required for the year of death. The return generally reports income and deductions attributable to the deceased person through the date of death.
The family will need to determine:
- Whether all previous tax returns were filed
- What income was received before and after death
- Which filing status applies
- Who is legally authorized to sign the return
- Whether a joint return can be filed with a surviving spouse
- Whether taxes are owed or a refund is expected
- Whether additional federal or state forms are required
Income received after death may belong to the estate, trust, or beneficiary rather than the deceased person’s final individual return.
Determine Whether an Estate Return Is Required
The deceased person and the estate may be treated as separate taxpayers.
Depending on the estate’s assets and income, it may be necessary to:
- Obtain an Employer Identification Number for the estate
- Open a separate estate bank account
- File Form 56 to notify the IRS of a fiduciary relationship
- File an estate or trust income tax return
- Issue Schedules K-1 to beneficiaries
- Consider whether an estate tax return should be filed
- Evaluate a portability election for a surviving spouse
Estate assets should not be fully distributed until outstanding taxes, debts, expenses, and filing responsibilities have been reviewed.
Preserve Date-of-Death Values
Inherited property may receive an adjusted tax basis based on its fair market value at the date of death, subject to applicable tax rules. Accurate documentation can significantly affect the gain or loss reported when inherited property is later sold.
Families should preserve date-of-death values for:
- Real estate
- Brokerage accounts
- Privately held businesses
- Vehicles
- Collectibles and jewelry
- Cryptocurrency
- Other valuable property
Appraisals, brokerage statements, valuation reports, and property records should be retained with the permanent estate files.
Be Careful With Retirement Accounts
Retirement-account decisions can have significant—and sometimes irreversible—tax consequences.
Before withdrawing, transferring, combining, or retitling an inherited retirement account, confirm:
- Who the named beneficiary is
- Whether a required minimum distribution remains unpaid
- Which inherited-account options are available
- The deadlines for taking distributions
- How a withdrawal may affect taxable income
Do not automatically cash out an inherited IRA, 401(k), pension, or annuity before reviewing the tax consequences with qualified professionals.
What If the Deceased Owned a Business?
When a business owner dies, the family may also need to address payroll, sales tax, tax filings, contracts, insurance, business operations, and ownership succession.
Operating agreements, shareholder agreements, partnership agreements, and buy-sell agreements should be located immediately. A business valuation may also be necessary.
Until legal authority and ownership have been established, family members should avoid selling or distributing the deceased person’s business interest.
Schedule a Year-End Tax Planning Review
A surviving spouse should consider scheduling a tax-planning meeting before December 31.
The year of death may involve changes to:
- Filing status
- Household income
- Tax withholding
- Estimated tax payments
- Retirement distributions
- Capital gains and losses
- Medical deductions
- Business income
- Property sales
- Estate or beneficiary distributions
Reviewing these matters before year-end may provide opportunities to prevent an unexpected tax bill or reduce potential tax liabilities.
Give Your Family One Less Thing to Figure Out
Preparing for a loss does not make it any less painful. It does, however, give your family a place to begin.
If your family experiences a loss, notify our office when you are able. Rae’s Accounting can help identify the tax-related steps that apply and coordinate with your estate attorney, financial adviser, and other professionals.
