The loss of one’s parents can create overwhelming grief and stress. On top of the emotions, surviving children often need to complete what might seem like a mountain of tasks—many related to their parents’ finances.
“At Trust Point, we realize that assisting in this capacity is very difficult,” says Regina Siegel, Assistant Vice President at Trust Point. “It can be a trying and tiring time and it is important to remember to prioritize your own self-care, to be forgiving of yourself and others, and to give yourself grace throughout the process. Lean on your support system of trusted family, friends, or clergy as well as your financial partners at Trust Point.” Siegel and Trust Point’s Peter Hendricks, JD, Relationship Manager, both have a wealth of experience advising clients when a loved one passes. They explain the most important financial tasks to address after parents pass.
What To Do When A Parent Dies ? 7 Steps To Prepare Finances
1. Be Prepared
No one wants to plan for the loss of a parent, but being proactive and having conversations early can bring relief and eliminate stress in the future. If an illness or emergency situation impairs one’s ability to make decisions or communicate, it may be necessary to legally act for a parent and that becomes difficult without the proper legal documents in place.
The first required document is a financial power of attorney, which will allow you to sign and make decisions for your parents in the event of their incapacity or simply their desire to have someone else manage their financial affairs.
It is important to note that a power of attorney terminates at the death of the principal. A health care directive (also called a health care power of attorney and living will) is equally important, so you can make medical decisions should your parents no longer be able to communicate. Having a power of attorney and health care directive often avoids the need for expensive guardianship and conservatorship court proceedings should an individual become incapacitated.
Assets are distributed at death based on ownership, and beneficiary designations on retirement accounts, life insurance, and other accounts, like bank accounts as long as beneficiary information has been provided. Assets owned by a trust are distributed according to the trust terms. If assets are owned individually by the decedent or do not have a beneficiary listed, they are distributed through the court-supervised probate process and the person’s will.
Make sure financial institutions are known, along with account numbers, passwords, locations of keys to safe deposit boxes, or anything else that will be needed. “There’s a propensity to people becoming digital and not receiving paper statements,” Hendricks says. “I think it’s helpful if a paper statement is printed out once a quarter or once a year and kept in a binder with passwords so that loved ones can easily locate financial assets.” It’s also helpful to be clear on burial wishes before death and to prepay for the funeral to relieve the emotional and financial burden on the family during a difficult time.
2. Find the Will and Establish Representation
Once your loved one passes, the first financial action is to locate the will and determine the nominated personal representative. The personal representative sometimes referred to as an executor, is either an individual or corporate fiduciary responsible for collecting assets, paying final bills, filing taxes, and making distributions to the beneficiaries.
Probate is the court process of determining if the decedent had a valid will, appointing the personal representative, and managing the decedent’s property based on the will, or if there is no will, the laws of intestacy in the decedent’s state of residence. “The personal representative is named or nominated in the will, but the court has to formally appoint the personal representative before accessing accounts in the decedent’s name,” Hendricks says.
A trust, such as a revocable living trust, can avoid the need for a probate administration since trust-owned assets are managed by the trustee and often without any court involvement. “And if you have a revocable living trust as part of your estate plan, it’s very important that assets are retitled so they are owned by the trust,” Hendricks says. “Failing to retitle assets in a trust causes both a probate and trust administration. First, the assets not in the trust must go through a probate administration to pour over (move) the assets to the trust. Then, the trust administration is completed.
With proper planning, the probate administration is avoided when there is a trust.” If you are named a personal representative or trustee, it is important to meet with an attorney and tax advisor who has experience in estate and trust administration to understand the process and to make sure the administration is completed correctly.
3. Secure Personal Assets
“Make sure that your parents’ home and valuables are safe and secure. Locks must be changed to prevent entry from anyone else who may have keys,” Siegel says. If there is any cash or valuable personal assets in the home, it is a good idea to place these items in a secure location such as a safe deposit box. Inventory all physical and digital assets—bank accounts, personal property, the house, vehicles, etc. Depending on the item, a certified appraisal may be required for tax purposes. Review mail, tax returns, bank accounts, titles, and any other documentation you can find to ensure your asset inventory is as complete as possible.
4. Evaluate Bills and Services
Make a list of important expenses, such as the mortgage, utilities, and others. Organize bills that need to be paid, but do not act prematurely and pay them right away, as there is a priority of creditors if the estate is not solvent to pay all creditors in full. Cancel unused services, such as internet, cell phone, and cable. Complete a forwarding address order with the post office.
5. Manage Accounts
When it is time to close bank accounts and stop payments, you will need a death certificate, authority from the court, if the account is a probate asset or your authority as a trustee. Here’s a rundown of some of the major accounts you’ll need to manage:
- Bank accounts (checking and savings)
- Credit cards
- Insurance policies (if your parents had a life insurance
- Policy you will need to file a claim to receive benefits)
- Investment accounts, such as an IRA or 401(k)
- Mortgage statements
- Real estate deeds
- Tax returns (find the last two years), including any gift
- tax returns
- Loans or lines of credit
- Obtaining a credit report can also be helpful.
6. File the Final Tax Returns
The personal representative will need to file a final tax return for the decedent, which is due April 15 of the year after the death. You will need to locate W-2s and other tax documents to complete the filing. A fiduciary income tax return, which covers income and expenses related to the estate or trust administration after death, will also be required.
This return needs to be prepared throughout the estate administration until all assets have been distributed to beneficiaries. A federal estate tax return will need to be filed in some instances if the estate is over the federal exemption amount, which for 2021 is $11.7 million. Some states, such as Minnesota, have a state estate tax with a lower exemption amount (currently $3 million in Minnesota as of 2021).
7. Locate Beneficiaries and Distribute Assets
This is the responsibility many people think of when it comes to managing an estate. “Locating all beneficiaries and distributing assets is often a long process and can take more than a year in some cases,” Siegel says. The professionals at Trust Point have more than a century of experience setting estates and trusts. We are adept at working side-by-side with you as well as attorneys, accountants, and other trusted partners to ensure the process proceeds as efficiently as possible. Whether you are managing the estate for your parents or another loved one who has passed, you can count on Trust Point to help you carry out their wishes—humanizing the estate settlement process and working closely with beneficiaries to complete the job.