Anyone who is married or in a long-term relationship eventually experiences the loss of their beloved. This may be harder to contemplate than your own death, and many people steer clear of estate planning for this reason. A recent article from Next Avenue, “Surviving Survivor Benefits,” explains why planning for survivorship is so essential and what you’ll want to do to help each other prepare.
Survivor benefits are complicated, regardless of their source. It’s easy to miss things, for small mistakes to have big impacts, and for the surviving spouse to find themselves overwhelmed by many issues all at once, while dealing with grief. The best way to ease the problem is to have an estate plan in place and do a dress rehearsal while both members of the couple are alive, well and competent.
It helps to understand how pension survivor benefits work. Pensions are governed by a federal law known as ERISA, which requires private and government pensions to offer benefits to a surviving spouse. The survivor benefit for a private pension is usually half the amount of the full pension.
However, in some cases, the employee and their spouse waive the right to a survivor payout. This occurs most often when an employee chooses to accept a lump sum payment rather than receive monthly benefits. Both spouses must waive their right to a survivor payout by signing a written and notarized consent form. This is often revealed to have been a mistake only years later, when the lump sum is gone, the employee spouse has died and the surviving spouse no longer receives the monthly benefit. If the employee lives long enough, they may outlive the sum, even if it is invested successfully. If you or your spouse has a pension, review the distribution scenarios together and weigh your choices.
Are there ever good reasons to deny benefits to a spouse? Two reasons stand out: giving up the survivor portion of the pension increases the monthly benefit amount. If the surviving spouse has more than enough assets when the pension owner dies, it may be better to receive a higher benefit while the owner is living.
Annuities similarly require a beneficiary to be named in the original contract and offer options for how survivor benefits are paid. Figuring this out for the survivor requires a careful review. Does the annuity even provide a death benefit? How many years will the benefits be paid to a survivor, and what is the amount? Some annuities offer a guaranteed minimum death benefit, an option for the surviving spouse to receive a lump sum payment.
The most important takeaway here is to do all this investigating while both spouses are alive and competent. The terms are sometimes set in stone when the policy owner establishes the account, while others offer the ability to make changes, but only if the owner is living.
The same advice applies to having all these matters in hand while both spouses are living, as well as to having an estate plan created or updated. Once someone becomes incapacitated, they cannot sign legal documents, such as a will, Power of Attorney, or Healthcare Proxy, or establish a trust. All these decisions and documents should be prepared with the assistance of an experienced estate planning attorney while the couple is well and has full legal capacity.
Think of all these preparations as a gift from one loving spouse to another. The time after the loss of a spouse is very difficult, and having estate planning and financial matters taken care of in advance will provide great peace of mind.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. Schedule a quick and easy consultation with our estate planning attorney, Sedric E. Collins, Esq., or call 323-900-5450.
