In the wake of last month's terrorist attacks, thousands of surviving family members must contend not only with grief, but also with unexpected financial burdens.
While mourning, most people find it difficult to deal with household finances. But, unfortunately, certain issues can't be put off.
With that in mind,
compiled some advice from financial planners on coping with the financial aftermath of a loved one's death. Some of the information we've included was obtained from a comprehensive list from the
Financial Planning Association (FPA), which offers additional details on Social Security and veterans' benefits for survivors in the event of a death.
A few general tips: Because survivors typically aren't in the frame of mind to make monetary decisions, a close friend or relative should help. "The grieving process is very real, and until you get through it, you don't realize how foggy and out of it you were," says Karen Schaeffer, a certified financial planner in Rockville, Md.
For that reason, financial planners say it's best to stabilize the situation and put off major decisions. "People get frightened that they can't stay in the house, so they want to put it on the market right away. Others want to pay off their mortgages. These are huge decisions with irrevocable consequences, and early in the grieving process is not a great time to be making them," says Schaeffer. Some planners recommend waiting at least a year before undertaking significant financial changes.
Because survivors are likely to be distracted and forgetful, they may want to record when and who they talk with when contacting insurance companies or employers about benefits and claims procedures.
Getting Through the Short Term: The Claims Process
Under normal circumstances, survivors first need to obtain certified death certificates. Death certificates allow survivors to apply for death, retirement and Social Security benefits, as well as to eventually settle a spouse's estate.
Death certificates can be obtained through the county recorder's office or sometimes requested through the mortuary handling a funeral. Planners advise getting at least 10 or more, depending on the complexity of an estate. In the case of the terrorist attacks, though, life insurers and other claim-payers have relaxed the requirement for death certificates. Insurers are accepting certified copies of airline manifests and other proof of death.
To speed up the claims process, survivors should request forms from insurers and a spouse's employer. The FPA recommends that survivors also notify banks, investment accounts, mortgage holders and the Department of Motor Vehicles of a spouse's death. These steps reduce the potential for scam artists to use the deceased's name illegally, planners say.
Navigating a Cash Crunch
Those facing a money pinch, though, may want to wait to notify their credit card company of a spouse's death. If the card had been approved based on two incomes, the company might reassess a cardholder's creditworthiness. "Don't call them until you know there's going to be a
payment problem," says Philip Cook, a certified financial planner in Torrance, Calif. If that is the case, it might be possible to avoid late charges and service fees by talking to creditors.
Planners say it's important to try to keep paying bills on time to avoid losing good credit ratings and to control spending. In the meantime, it may be useful to create an emergency budget to get a better handle on near-term expenses. Besides shouldering the high cost of a funeral, a surviving spouse may have to pay for baby-sitting and other services.
In the case of a cash crunch, one of the quickest ways to get money is to apply for a home-equity line of credit, says Schaeffer. A home-equity line of credit is tax-deductible, carries low interest rates and has some of the least restrictions of the available short-term solutions. Plus, it's fast -- people who have equity in their home and a good credit rating can get approved for credit within days. Another option: In some cases, the employer of the deceased may be willing to give a temporary loan to the family while the estate is being settled.
Survivors of those who died in the terrorist attacks also can seek help from the Red Cross and other private relief groups, state and local agencies, and the Federal Emergency Management Agency.
posted some of those phone numbers.
Financial planners say it's best not to cash out of retirement accounts or sell investments to bridge short-term cash needs. "Sometimes the decisions you make early on are not decisions you want to live with," says Cook.
Dealing With the Employer of the Deceased
Survivors also should contact a spouse's employer to figure out available benefits. Besides company-sponsored life insurance, survivors may be eligible to receive unpaid salary, bonuses, commissions, deferred compensation and unused vacations and sick days. The deceased also may have held stock options.
In the event of a death, some companies will respond to claims efficiently and with sensitivity; others will not. The situation may be complicated by the fact that spouses often are not sure what questions to ask. "If people feel really uncomfortable, I tell them to just say, 'I need to talk to the person who can give me the list of all the benefits I might be entitled to. Are you the right person?' " says Schaeffer. "Try to put the onus on them to walk you through everything."
In the event of death, survivors are allowed to cash out qualified retirement plans like 401(k)s and 403(b)s without paying the usual 10% early withdrawal fees, though they have to pay income taxes on the money. While some plans offer the option of fixed payments, benefits are typically received as a lump sum. Policies for defined-contribution pension plans vary.
If a family had health care coverage through an employer of the deceased, planners advise extending insurance through COBRA coverage for the next 18 months. Though the surviving spouse will have to pay the entire premium, COBRA typically offers better coverage for less money than the open market.
Figuring Out Life Insurance
If it's not clear whether someone who died had life insurance, the FPA recommends that spouses comb through financial records and examine checkbook records for checks written to insurance companies. If survivors still aren't sure, they can try calling the
Life and Health Insurance Foundation for Education (888-346-8200), which will contact major life insurance companies to see if any policies turn up.
Besides company and personal life insurance, the FPA points out, the deceased may have been covered by business ownership life insurance and travel insurance. Even credit cards may have offered life insurance coverage, as well as payment protection for some loans. Auto insurers and unions or professional organizations also may provide death benefits.
Once approved for benefits, survivors need to decide whether to take them in the form of a lump sum or in installment payments. The lump-sum option usually has a greater financial value than regular monthly income. But taking a lump sum only makes sense for those with a certain amount of financial savvy, or at least a trustworthy financial advisor.
In any case, financial planners caution against a third option, annuitization, which involves converting the money into an annuity paid every month until the survivor's death. Generally, returns are low and it's impossible to make changes once that decision has been made. And when the survivor dies, the balance of the annuity may go to the insurance company instead of the survivor's heirs.
Until the beneficiary feels mentally ready to make some fairly complicated financial decisions, it may be sensible to just leave the money where it is, earning interest.