Inherited Accounts: Helping your Surviving Parent

September 3, 2015 12:01 pm

Daniel R. Legault, CFP®

Senior Financial Advisor

Your mom/dad is now ready to handle the finances after the death of their spouse; the assets have been properly inventoried, they have not made any large financial decisions, and it is now time to deal with the reality of their new financial future. They have called you to help them determine the best decisions to make. The decisions that you help your surviving parent make can have significant consequences; therefore, I welcome you to read below for important considerations.

Family Dynamic
This will be a tough assignment for you. Undoubtedly there will be uncomfortable situations as you help your parent determine the best course of action. Make no mistake, money is emotional. The era in which your parents have grown have shaped their feelings about money, so patience will be required.

IRAs, Annuities, Life Insurance, Brokerage Accounts
There are so many types of accounts that could be inherited, each with different ramifications. For example, life insurance proceeds are typically received tax free, IRAs can usually be rolled over to the survivor spouse as their own (however be sure to inquire about required minimum distributions (“RMDs”) and other circumstances that could prevent this option), annuities can sometimes be carried on in their present form, and individual stocks in the deceased spouse’s name may receive a “step up” in basis which would be a big tax advantage. There are no “cookie cutter” solutions as to what to do with each account; it will really depend on your mom/dad’s current needs.

Investment Risk
Did your surviving parent have experience managing assets during the marriage? If they did not, it is important to properly assess whether the assets inherited match their current risk tolerance. Sometimes I find a large concentration of individual stocks, which might not be appropriate for the surviving parent.  A proper investment review, which includes an evaluation of their risk tolerance, will help determine the types of investments they should keep.

Income Needs
How much income is needed for your parent? What income sources will they have? Are there survivor pension amounts to include? These are all very important questions as it will determine what to do with the remaining assets. In some cases it may make sense to pay off a mortgage, however with rates as low as they are, paying off the mortgage may not be best.

Social Security Implications: When one spouse passes away, if they were both collecting Social Security, the lower amount will no longer be received. Typically the surviving spouse will receive the higher of the two amounts. Certain rules may apply when pensions are involved, which could severely limit or eliminate the amount of Social Security benefit received.

Wrapping Up
In my experience, navigating all of these issues requires some help. I would suggest seeking the advice of someone who is unbiased, and that you trust. If possible, meet the financial professional with your parent. In fact, I would meet with at least two individuals. This individual should review your surviving parent’s situation with a very high level view in mind, with individualized solutions provided only after a thorough analysis. Do not feel that you have to stay with the current financial professional assigned to the investment accounts as they may not be the best fit. The financial plan should be simple to understand, not restrictive in the way the funds are invested, and effective in its implementation.

Dan Legault, CFP® serves as Senior Financial Advisor at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail him at dlegault@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Dan’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference