Tax Guy: How to settle a loved one’s estate — and when to hire a pro

United States

When a loved one passes away, taxes and other important financial considerations may be the last thing on your mind — but they must be addressed.

In four recent columns, I focused largely on the tax issues that can arise. See here to read about inheritance taxes; here if you think you’ll inherit a house or retirement account; here to learn about important tax deadlines for estate executors; and here for a checklist of duties for estate executors.

This column is the last of our series, and we cover the rest of the story here.

When to sell the family house

When the deceased loved one (the decedent) was financially well-off, selling a high-end family home can be one of the executor’s tasks.

If the decedent was unmarried, the heirs (often adult children) will probably want to sell the place. Until COVID-19 hit, there were distinct home-selling seasons in most areas. For a while, that was no longer true because buyers were frantic and homes were in short supply. But now, seasonality may be coming back. Your friendly local realtor may “strongly encourage” you to get the place ready for sale during the peak selling season so you can get top dollar — which also maximizes the realtor’s commission. Getting top dollar is great, but you may be presented with a ready-for-sale deadline that’s much sooner than you would like.

If the decedent was married, the surviving spouse may want to downsize, move closer to relatives, move to a lower-tax state, or move into an assisted living environment. You may have to arrange for the surviving spouse’s move on top of arranging to sell the former marital abode.

When to hire an estate liquidator or other pro

If the home that must now be sold was lived in for many years, you’ll probably discover that there are many years’ worth of “stuff” packed into the place. If there’s lots of valuable stuff that other interested parties won’t take off your hands (like a houseful of fine furniture, rugs, antiques, and so forth), consider hiring an estate liquidator.

For the rest, consider hiring a professional organizer and packer to help get the stuff packed up and moved to its new venue. Your organizer probably has ties to local charities that will sometimes send trucks to take away any excess stuff that’s not outright junk.

Of course, you can choose to handle the disposition of all the stuff yourself, but it will be far more time-consuming than you expect.

When to change the title to the home

You may have to change the title to the home before it can be sold. For example, this can be the case if the home was owned by a revocable family trust to avoid probate. If the decedent was unmarried, the trust is probably now an irrevocable trust, because the person who set it up has died. If so, title to the home may have to be changed to reflect that fact. If the home was owned by a revocable trust set up by a married couple, the trust may have to be amended to remove the decedent as a trustee. There are other situations that may require changing title to the home. Consult a good real estate or estate planning attorney. For tax considerations when there’s a trust, see this Tax Guy.

Key questions and practical considerations

The following is far from a complete list, but it’s a start.

Will there be enough cash and/or income for the surviving spouse to live comfortably without selling the marital abode?

If yes, the surviving spouse may want to stay put. But if the survivor is elderly, that may just postpone all the inevitable home sale and relocation issues mentioned above. It might be better to get the inevitable over with while the surviving spouse is still physically and mentally healthy enough to participate in the process.

Is the surviving spouse ready to handle the finances?

Maybe not. Many married couples (especially older folks) delegate virtually all financial matters to one spouse. The surviving spouse may not be that person. If so, he or she may not know to keep a check book; may have only a vague idea of all the bills to be paid; and may know next to nothing about insurance policies, retirement accounts, and investments. Have the health insurance, homeowners insurance, and auto insurance premiums been paid? Have the property taxes been paid? Maybe not.

If the decedent handled the finances and was fading, things may have fallen through the cracks without the other spouse having a clue. Yikes. Be prepared to do some forensic accounting. And get ready to conduct a basic personal finance seminar for the surviving spouse.

Remember to check the surviving spouse’s life insurance policies

The now-deceased spouse may be the designated policy beneficiary. Not good. Designate new beneficiaries to avoid probate and other hassles when the surviving spouse passes away.

Get retirement and investment accounts in order

First you must find out if they exist, how big they are, and what investments they hold. You may need to liquidate some investments to pay the estate’s or the surviving spouse’s expenses. You may be able to arrange for multiple IRAs to be consolidated into a single account that can be more easily managed.

Check safe deposit boxes

Get into them and deal with what you find. A valuable coin collection could be in a box. Property titles are likely to be in a box. There could be U.S. Savings Bonds worth thousands. Who knows? You’ll probably need a death certificate and maybe a power of attorney to gain access to the decedent’s box(es).

Taxes, taxes, taxes

Yikes. See the links to my earlier columns.

Shut things down

This could include utilities, garbage pickup, yard care, pool care, security monitoring, cable and communications services, and credit cards. Get computer hard drives wiped before donating the machines to charity.

The bottom line

I hope this series gives you an idea of what you may face when a loved one passes away. It can be an exhausting process that goes on for months. If you can hire pros to help, do it. It’s money well spent and sanity preserved.

Previous Tax Guy columns for heirs

What does an estate executor do? Here’s a checklist of the most important financial duties

What to do if you’re the executor of a loved one’s estate — starting with when to pay the taxes

Are you inheriting a house or retirement account from a loved one? Read this first

Worried about inheritance tax? Read this if you’re a beneficiary, executor or trustee