The days following the death of a spouse can be confusing.
There are a lot of decisions to make and tasks to undertake. One area that must be dealt with quickly and competently is your finances. It is very important to get a clear picture of what steps you must take to secure your financial future.
For example, it is not unusual for a surviving spouse to consider selling their home and downsizing to a condominium or apartment. There are legal and financial implications to taking that step. The federal income tax basis of inherited assets that earn capital gains is “stepped up” to the fair market value at the time of a spouse’s death. That means if you sell your home shortly after their death, you will owe no tax. If you sell it at a later date, you will be taxed on the capital gains earned after the date of your spouse’s death. In California, the “step-up” applies to 100 percent of a home’s value if it is community property. In non-community property states, the step-up applies to only 50 percent of the home’s value.
In addition, if a surviving spouse sells a home owned jointly with a deceased spouse, the law permits a $500,000 exclusion from capital gains tax if the home is sold within two years of the spouse’s death. That two-year exclusionary period begins on the date of the spouse’s death and ends exactly 24 months later.
However, the decision to sell your home should be made as part of a broader financial plan. Upon the death of a spouse, it is important to examine all existing assets and income, and determine what steps must be taken to ensure that you remain financially solvent. If you are not equipped to make such decisions, it may be necessary to contact a financial planner. Financial planners advise clients on budgeting, saving, investing, and growing money. They also assist with achieving specific financial goals, such as planning for retirement, or saving for a child’s college education or the purchase of a luxury item.
There are different types of financial planners. When seeking financial advice, however, a certified financial planner (CFP) is the safest alternative. A CFP attends classes on financial planning and has passed a stringent test administered by the Certified Financial Planner Board of Standards. Once certified, CFPs are required to complete a certain number of continuing education classes on financial planning issues and ethics. A certified financial planner is not the same thing as a banker, accountant, or investment/stock broker, and they serve a much different purpose.
The search for a financial planner should begin by seeking recommendations from your attorney, family members, business associates, and/or professional groups, such as the National Association of Personal Financial Advisors. Once you have selected several candidates, it is important to verify their credentials. Believe it or not, anyone can claim to be a financial planner and the field is not without fraud and scammers. You need to make sure the person handling your money can be trusted.
Begin by examining the designations following a planner’s name. The most important credential is CFP. An individual’s certification status and the existence of any disciplinary actions against them can be found on the website for the CFP Board (https://www.cfp.net/home). Any other designations listed by a financial planner can be verified on the Financial Industry Regulatory Authority (FINRA) database at http://www.finra.org/investors/professional-designations. That database provides information on what each designation means, how the accreditation is achieved, verification of accreditation, whether there is a published list of disciplinary actions, and whether there is a complaint procedure in place. If a designation isn’t listed on that website, chances are, it doesn’t exist.
Once credentials are verified, it is time to arrange for a face-to-face interview. Among the questions that should be asked:
- Do you have experience with handling situations like mine? Experience counts. You want a planner who has handled the affairs of other widows. They will have a unique insight into the special needs of someone who has lost a spouse.
- Do you consider yourself a fiduciary? This is a very important question. A fiduciary has pledged to act in a client’s best interests. Investment professionals who aren’t fiduciaries are held to a lesser standard of conduct.
- Do you charge a commission or a fee? Financial planners earn either commissions, or hourly or flat fees. Some people avoid planners who earn a commission from the investment products they sell because they believe they have a conflict of interest. The important thing is to make sure you understand how and how much they get paid and that you are comfortable with that. Planners who earn a fee for their counsel are believed to provide more objective, unbiased advice.
- Do you think you can “beat the market?” Run, don’t walk, if a planner assures you that they can exceed average market earnings. No one can safely make such guarantees and if they do, chances are they will take risks with your money.
- How do you work with clients? How does an advisor craft your financial strategy, report on its progress, make adjustments, and demonstrate success? If you aren’t comfortable with their process, move on.
- Do you have references? Get the names of current clients and business associates, then contact them. Ask: Do you recommend this planner? Why or why not? Has he or she helped you achieve your financial goals? If you could change one thing about the working relationship, that would it be? If the references do not provide encouraging information, move on.
A face-to-face interview is the best way to get a sense of a planner’s proficiency and communications style. If you are uncomfortable with one candidate, keep looking. It is important to find a financial planner you trust to help you achieve your personal financial goals. There are a lot of financial planners out there. You deserve the one who best meets your needs!
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