Written by Carrie L. Fellon, CFP®, CRPS

Dealing with the grief and loss of a spouse or significant other can, on its own, feel overwhelming. The legal and administrative tasks associated with the deceased person’s estate can increase the stress that one may already feel.

Three common estate planning issues can arise and take a surviving spouse by surprise. Here, we outline each, with steps to take if you’re newly widowed. We also provide recommendations to implement while your spouse is alive to enable you to avoid some of these financial situations.


Credit Card Authorization versus Credit Card Ownership

Imagine a new widow’s surprise upon learning of an overdue bill that she assumed had been paid or finding that her card has been declined by the credit card company. After contacting the card issuer, she learned that her deceased husband had been the owner, while she had been an authorized user. Because the credit card issuer received notice of her husband’s death, they closed the account.

Do you own the credit card you use with a spouse or partner, or are you merely an authorized user of that person’s card? If you don’t know, call the card issuer directly.

A credit card account owned jointly is issued to both parties, each with charging privileges and equal responsibility for the debt. Each owner can build credit. Joint accounts are commonly shared by spouses and can be ideal for owners who make payments on time and keep their balances low. Conversely, if one cardholder maxes out the card, makes a late payment, or misses a payment altogether, both cardholders’ credit scores will be negatively impacted. The account must be closed in order to remove either party from the account, which can be a challenge in the case of death, separation, or divorce. Few major credit card companies allow joint ownership.

A card issued to a primary account holder, however, grants both parties the authority to charge purchases and obligates only the primary account holder to pay the debt. An authorized user can build credit and can easily remove himself from the account. An authorized user is not responsible for the debt of the primary cardholder; thus, a surviving spouse who was an authorized user is not responsible for the debt of the deceased spouse.

While you’re married: If you own none of the cards you use, apply for a major credit card in your name now. If you earn substantially less income than your spouse, you can still include all combined household income on the application. Once you’ve been issued your own card, you’ll be able to maintain your credit record and have uninterrupted use of a card in the event of your spouse’s death.

If you’re widowed: Apply for a major credit card in your name. If your application is turned down due to lack of credit history, apply for a department store credit card or a secured credit card. This will help you build your own credit record. Request your deceased spouse’s credit report to see if any active accounts need to be closed or if any suspicious activity has occurred. Scammers scour obituaries, looking for opportunities to open new accounts in the names of deceased individuals. Ask the credit reporting bureaus to place a deceased alert on your late spouse’s credit report.


Access to Medical Records When a Spouse Dies

Perhaps you’re interested in maintaining your family’s health history. Access to your spouse’s medical records while she’s alive will be restricted upon her death, even if you were appointed her agent in a power of attorney document. This is because a power of attorney document expires upon the death of its creator.

While you’re married: Be sure you both execute a durable health care power of attorney, naming each other to act as agent on the other’s behalf in the event you become incapacitated. Regardless of whether you’re acting on your own behalf or as your spouse’s agent, log in to your medical provider’s online portal after each procedure and office or hospital visit to access a report outlining your diagnosis and plan of treatment and then save these reports to an external hard drive or cloud storage plan. This way, you’re sure to capture an entire medical history.

If you’re widowed: The Health Insurance Portability and Accountability Act of 1996 (HIPAA) safeguards the privacy of an individual’s protected health information (PHI) for a period of 50 years following their death. Under HIPAA, a deceased person’s representative – their executor if they died leaving a will, or their administrator if they died without a will – is legally entitled to obtain the deceased person’s PHI. The health information manager or privacy officer of a local hospital can give specifics on your state’s release-of-information laws. County and state health departments are additional resources. Be prepared to provide your spouse’s death certificate and proof that you’re the executor or administrator of his estate.


Tax Considerations After the Death of a Spouse

Few married couples filing joint tax returns plan for what some refer to as “the stealth tax”, also known as the “widow’s penalty”. After the death of a spouse or partner, overall household income is reduced — but, unfortunately, the surviving spouse often faces a higher tax liability. While taxable income may not be reduced a full 50%, both the amount of taxable income to remain in the same marginal bracket as well as the standard deduction are halved for the now single filer.

Required minimum distributions (RMDs) from retirement accounts and pension income are federally taxable at the marginal ordinary income rate. Depending on a taxpayer’s provisional income – adjusted gross income plus half of Social Security benefits, plus any tax-exempt income received over the course of the tax year – up to 85% of Social Security retirement benefits may be subject to ordinary income tax. Upon the first spouse’s death, the survivor can switch to the deceased spouse’s higher benefit, effectively reducing overall Social Security income.

If both spouses are receiving RMDs, the income is taxed at their joint filing rate. Upon the death of the first spouse, the survivor who rolls the deceased spouse’s IRA into her own IRA will likely continue taking annual distributions from the now larger account. She’ll be subject to ordinary income tax and could possibly be pushed into a higher single tax bracket as a result.

Another potential sneaky surprise is a Medicare Part B and D surcharge imposed on higher income brackets. This is known as the income related monthly adjustment amount (IRMAA). Single filers must have a modified adjusted gross income (MAGI) below $88,000 to avoid the surcharge, while married joint filers can make up to $176,000 and not pay IRMAA. Even one dollar over the limit causes the full surcharge to apply to all premiums paid for the year. (Your MAGI for the 2021 tax year will determine your Medicare premiums in 2023.)

Finally, a 3.8% surcharge on Net Investment Income (NIIT) – such as interest, dividends, and capital gains – is reached at a higher threshold for married joint filers than for single filers. The surtax applies to MAGI over $250,000 for married joint taxpayers and $200,000 for single filers. Thus, the surviving spouse could end up paying a tax to which he hadn’t been subject prior to his wife’s death.

While you’re married: Consider Roth IRA conversions in the years prior to starting Social Security benefits. Although the amount converted to a Roth IRA will be subject to ordinary income tax in the year of conversion, the balance in a Roth IRA is not subject to RMDs so long as you follow several rules. The more dollars you convert from a traditional IRA, the lower the potential RMD from the traditional IRA in future years. Be careful, though, to keep income below the thresholds that could trigger IRMAA and NIIT.

Consider splitting a large IRA into several smaller IRAs. This can expand a surviving spouse’s choices on the amount of inherited assets she may wish to disclaim (decline to inherit).

Consider keeping life insurance policies, even if you no longer have liabilities such as college tuition or a mortgage. The death benefit can provide a tax-free lump sum of cash to offset the effects of the widow’s penalty.

If you’re widowed:  You have one final chance to file as married joint taxpayers in the year of your spouse’s death. Take advantage of this higher income threshold and standard deduction by filling up your current tax bracket. If you’re in the 22% married joint tax bracket, your taxable income can be as high as $172,750. A single filer, on the other hand, can only have taxable income up to $86,375 to remain in the 22% bracket.

Bunching income in the year of death can include a conversion of your own IRA to a Roth IRA or redemption of US savings bonds to free up cash while paying any deferred interest in the spouse’s year of death. If your estate is large enough to be potentially subject to estate taxes, you may even want to consider disclaiming an IRA inherited from your spouse. This means that the assets you decline to inherit would pass to any remaining primary beneficiaries or to the contingent beneficiaries named by your spouse.

Consult your financial strategist to learn how estate and retirement planning fit into your overall financial planning picture.