5 tips for beneficiaries: Planning for the future

Planning for the unexpected is an uncomfortable but necessary part of any relationship, especially when partners are financially dependent on each other.

Imagine if you lost your spouse or partner yesterday. What concerns would you have about your financial situation today?

This is a heavy question. But answering it can help lead to financial security and peace of mind for you and your loved ones.

Use this guide to help your conversations and discover the next steps in planning for survivorship.

Tip 1: Ask the tough questions.

What concerns do you have that need attention? Do you have a mortgage? Do you help with financial decisions in the household? Are you dependent on income from your spouse? What changes are you comfortable making and which do you want to avoid?

Losing a spouse or partner often means that there's one less income source. Costs may increase for things like child care and home maintenance.

Can you afford to keep your same lifestyle? Are you comfortable managing the finances, including bills, investments and insurance? Would you need to move closer to other family?

There are endless questions, so ask yourself the tough ones first. For example, if you want to stay in your home, how you will pay for the mortgage?

Tip 2: Review asset titling.

Make a list of all your property, accounts and insurance policies. If you have a will or trust documents already in place, review them regularly. Make sure they're in good order and aligned with your wishes.

Real property, like your home or cars, will have specific titles. Property titles will control how ownership transfers when one owner dies. Some property will simply transition to a joint owner. Other property becomes part of the deceased individual's estate. Their will or a probate court decides how it's distributed.

For property titling, it's important to work with a legal professional to address any special circumstances for your needs. Be aware that selling co-owned property can require extra steps or involve other people.

If you don't have a will or trust in place, take the steps to create one. Work with a trusted advisor or legal professional to help draft your documents. If you're a service member, you can visit an on-base legal advisor or JAG officer.

Note: Wills don't decide guardianship. If you have minor children, get legal documents prepared that name who should look after your children if you and your spouse were to die.

Tip 3: Review assets, accounts and pensions.

Your financial assets will likely have the same titling as your real property.

Retirement accounts like a TSP, 401(k) or IRAs can have a beneficiary assigned to them. Some nonretirement accounts are also titled in ways that allow immediate transfer to a beneficiary. Accounts that have payable-on-death or transfer-on-death instructions provide easy transition to beneficiaries.

Just because you're a couple, doesn't mean you're married. Pay attention to how retirement accounts and other tax-advantaged accounts may pass to a someone other than a spouse. Typically, there are specific tax rules. Working with a tax professional can help clarify what rules may apply based on your marital status.

Any accounts that don't have transfer instructions attached are distributed based on your will.

Pension plans, like the Survivor Benefit Plan (SBP), will need a signature from the chosen beneficiary for the elected plan benefit.

It's important to consider which accounts would be used for current living costs. It may be smart to let tax-advantaged accounts grow for your future.

Survivor benefits can vary. There are often many options provided to continue payments at various percentage amounts for a lifetime. Review these items with a retirement income specialist to develop a game plan for your future.

Tip 4: Review insurance policies.

Review all your insurance policies, including property, life and health insurance.

If you've lost a loved one, it's not common to receive a benefit from property insurance. You may still need to update the coverage to reflect ownership and named insureds on the policies.

It's also likely that you'll need to review and replace your health insurance. If your current health policy is through your spouse's employer, coverage will only continue temporarily.

You'll need to either enroll in coverage through COBRA or shop for new health insurance through a private provider or health care exchange.^{See note1}

Depending on changes to your income, health insurance bought through a health care exchange could be subsidized.

A valuable resource you can have during the time immediately following the loss of your loved one is life insurance. The claims process should be quick, and benefits are typically paid tax-free.

Take steps to review your current life insurance policies. Make sure the coverage amount meets your financial needs. Update your beneficiaries to reflect your wishes as well.

It's important to have an adequate amount of life insurance coverage. The first year after losing your spouse can be a whirlwind. You shouldn't make any significant immediate decisions, like paying off a mortgage. Having enough life insurance can give you the time needed to be able to make the right decision at the right time.

At the least, you should have enough coverage to pay off your household debts and replace your income for five years.

Tip 5: Take action.

The most important thing you can do is act now. Don't wait until the unexpected happens.

If you followed these tips, you covered a lot of ground. You likely found areas that need some attention and changes that can help you be prepared and secure.

Get help where you need it. Some of these topics are complex and not something you casually discuss. Speak with reputable advisors as you review each section of your financial situation.

Review your financial situation yearly to stay prepared. Make updates whenever you go through a major life event like changing jobs or moving.

As a beneficiary, knowing your plans ahead of time can make a difference. It can provide you the time and ability to celebrate your loved one's life and cope with all the changes.