If you’re looking for more, check out our latest episode of Money & Taxes from Bb to XYZ. There, we break down these nuances by generation, from Baby boomers to X, Y, and Z. The episode has the same title: “Navigating the Financial Impacts of Losing a Loved One.”

Losing a loved one can be incredibly difficult. Even when it’s an expectation following a long illness, the death of someone you care about is seemingly never easy. Worse yet can be the unexpected loss, filled with shock and unanswerable questions. 

In either case — and every case in between — the question, “What do I do now?” seems to arise. In an attempt to ease some of the difficulty of navigating the death of a loved one, I’m going to review some of what you can and should do financially after a loss. I’ll also include some ways that you can prepare, with your mortality in mind, to make things easier for the ones you love.

I’m certainly no expert on this topic (nor do I aspire to become one) but I hope that having a bit of a playbook to rely on can help you prepare or, in a time of need, allow you the space you need to grieve while knowing that you’re doing what you can to the best of your ability.

Navigating Loss: The Financial Aspects

Whether you’ve lost a spouse or someone else you care about, there are a few common areas of financial planning that loss touches. If you’re wondering what you should do financially as you plan a memorial for your loved one, let this be your guide.

Estate

If your loved one had a will, it’s important to locate it and provide it to the executor or personal representative. This is often the spouse or another individual who was very close to the deceased. That’s because the executor or personal representative has to file the will with the state, usually within 30 days.

Cash Flow

After losing a loved one, a spouse, partner, or live-in friend of the deceased will very likely experience a change in cash-flow needs. As they’ll need to continue to pay rent or a mortgage and its utilities as well as upkeep on a vehicle among other expenses, it’s unlikely that these will be cut in half, so it’s important to prepare for such shifts in spending.

If your spouse has passed away,  you may no longer receive their pension or annuity payments or the amount may change as the surviving spouse. You’ll also see changes to your household Social Security payments.

Insurance

If your loved one had a life insurance policy, your next step is to notify the company and file a claim. Once you’ve notified the insurance company of your loved one’s death, you can begin to notify beneficiaries on the account as the company processes the life insurance benefits.

For those who lost a loved one to an accidental death, check to see if they had an accidental death and dismemberment (AD&D) policy. These pay a single lump sum to the insured’s beneficiaries if their death meets certain conditions for the definition of “accidental death.”

Social Security also pays out a one-time death benefit of $255 to the deceased spouse or minor children.

Investment

If your spouse passed away, your risk tolerance may shift. This can be because of multiple underlying reasons, including a meaningful and lasting change in your tolerance following their death or a vast difference between your risk tolerance and theirs during their life, which led to a blended allocation. 

If you inherited assets from the loved one you lost, a vast change in your net worth may also affect how you invest. It’s a good idea to meet with your financial planner to not only work through the logistics of changing account ownership or inheriting accounts but also to review changes to your risk tolerance and distribution order.

If you’re the beneficiary of your loved one’s traditional or Roth IRA, 401(k), or other retirement account, you have a few options. One is to roll their account into your own IRA, but this is only available to spouses. Others include taking a full distribution — and dealing with any tax consequences if it’s a traditional account — or rolling it to your own IRA or Roth IRA. Another important consideration is required minimum distributions (RMDs). The IRS just clarified their RMD rules for beneficiaries of traditional accounts, and non-spouse beneficiaries must take annual RMDs and fully deplete the account within 10 years. 

Tax

First things first: In general, the transfer of assets from your loved one to you (aka an inheritance) is not a taxable event for most beneficiaries. When taxes do apply, it’s for any one of a number of reasons, not all of which are easy to define. This is definitely a subject to consult with a tax or financial professional about. Unfortunately, I’ve seen far too many hiccups arise simply from a misunderstanding of the circumstances.

With all of that said, two types of tax may apply: estate tax and/or income tax. In both cases, there are several nuances and timing considerations. For example, it may be necessary to file a final income tax return after an individual passes away, as well as an income tax return for their estate and possibly an estate tax return.

One thing to keep in mind is if your loved one owned assets (like a home or stocks), the beneficiary of that property will receive a step-up in the cost basis on the inheritance that they receive. This means that their basis — or the amount they acquired the asset for — is equal to its value on the date of their loved one’s death. 

Basically, anything that goes up or down in value will generally acquire a cost basis that is equal to the fair market value as of the date of death. For this reason, most estate transfers are income-tax-free unless money from tax-deferred accounts, like an IRA, is distributed. Of course, there are numerous ways to mitigate these income tax consequences with proper tax and financial planning.

On the other hand, if the estate tax does apply, it’s a tax on the transfer of wealth. Currently, the amount that any one individual can give away during their lifetime and/or at death is $13,610,000. In 2026, this limit will return to $5,000,000. Whether or not estate tax will apply to an estate is dependent on a number of factors, and beyond the scope of this blog. Check in with your tax and financial professional for more information.

Preparing for the Inevitable

Special thanks to friend of FPFoCo Kelsie Fresquez, a Northern Colorado-based funeral director, for her assistance with this portion of the article. The views that Kelsie shared with FPFoCo for this blog post are her own and do not necessarily reflect those of her employer.

Few people enjoy thinking about their own mortality and the costs of death. If, however, this article has got you thinking about yours, there are some ways for you to prepare to make the above easier on the ones you love.

• Prepay funeral expenses and preplan your funeral. Funeral costs increase every year. Prepaying means that you can pay less now and receive services of a similar quality later. This can also help reduce financial strain and the logistical burden of paying for funeral services for your loved ones, among other benefits. Payment plans are available, and funeral homes often employ preplanning advisors who can help you decide which package is right for you and assist you in creating a plan that aligns with your wishes.

• Complete your estate plan. This goes beyond simply completing your last will and testament. It also involves updating them when you experience a life change as well as designating (and talking to!) your personal representative or executor so they know their role and what to expect. An update to a complete estate plan may be especially necessary after the death of a loved one named in your documents.

• Life insurance: While life insurance is not necessary in all cases, it can be a strong choice earlier in life. That’s not only because life insurance tends to be less costly for younger people but also because we build up assets over our lifetimes. Upon death later in life, people tend to have assets to pass to their beneficiaries and don’t need as much, if any, insurance. Younger people, on the other hand, may want to help a spouse or partner pay off their mortgage or provide for their family in the event of their premature death. It’s important to note that it can take time for life insurance companies to provide benefits to beneficiaries and is not intended to pay for funeral expenses.

• Bonus: Veterans of the United States Armed Forces receive certain burial and memorial benefits through Veterans Affairs (VA). 

By preparing to help your family or friends on what to do and what benefits they’ll receive upon your death, you can give them the peace of mind that they’re doing what you would have wanted. As an FPFoCo Ongoing Services Client, be sure to share our information with them, too. We can assist your powers of attorney and executor or personal representative with information regarding your financial life and assets to assist them in the event of your incapacitation or upon your death.