How to Navigate Finances After a Spouse Dies
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Here's your Money Briefing for Tuesday, November 16th. I'm Trini Neri for The Wall Street Journal, filling in for J.R. Whalen. Dealing with the death of a spouse can be hard enough, but managing the financial impact can make it even more challenging.
Your tax rate could go way up as a single person, and very often the survivor has less income but a higher tax rate in some cases.
Coming up, we'll talk with our tax reporter, Laura Saunders, about navigating your finances if your spouse dies. That's after the break.
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When a spouse dies, everything changes, and not just your daily life, but your financial life as well, from how assets are handled to how you file taxes. To help sort through some of the big financial issues that arise after the death of a spouse, I'm joined now by WSJ tax reporter, Laura Saunders. Hi, Laura. Thanks for being here. Well, thanks so much for having me. Laura, big financial decisions are rarely easy, but it's got to be much harder when you have to make them after losing a spouse.
Absolutely. I talked to several tax experts about this and they said it's just a terrible thing. It's always overwhelming because you have the emotional upheaval of losing a spouse and you have to make decisions and the income tax and estate tax are really complicated, although most people don't have estate taxes to worry about, and there are deadlines involved. So it's really important to focus on these details.
So what's the first thing someone should do when it comes to the couple's finances?
Well, I think the important thing is to educate yourself sooner rather than later because there are these deadlines. And let me give you a good example. Say that the surviving spouse is living in a long-held family home. Well, now the death of the spouse means that you get a tax benefit. You would pay less tax on the sale of the house because it's a complicated thing called the cost basis step up. Basically, you have two years to get married. the biggest benefit. And that's a hard deadline. I mean, it's two years from the date of death of the spouse who died to sell the house if you're going to need to sell the house. A lot of people don't need to sell the house. They want to live there till they die.
But if you're going to need it to free up cash flow, you've got two years to get the biggest tax break possible. And so that's something to be aware of. Not to sell right away, but just to know that it's out there. That's a really important one.
And a death in the family can mean a lot of assets are changing hands. And that could mean tax implications. You mentioned estate taxes earlier. What do people need to know about how to handle estate taxes after losing a spouse?
Well, there's a piece of good news there, which is that when a spouse dies, all of the assets can go to the survivor tax-free. Now, the person who dies may not want to leave all the assets to the survivor, but to the extent that anything goes to the spouse, it goes tax-free.
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