Empowering Surviving Spouses: Strategies for Financial Security and Legacy Preservation

Losing a spouse can be an overwhelming and emotional experience, and having an estate plan in place can help provide confidence and ensure that both you and your heirs are protected in case of a spouse’s incapacity or death. A sound estate plan can provide comfort that one’s affairs are in order and is the basis for the ongoing process of lifetime planning. Retirement accounts and planned gifting are essential estate-planning considerations as well.

Incapacity planning

Ensuring all your goals and wishes are documented is an essential part of any estate plan. Incapacity documents, for example, can designate a decision-maker should you become incapacitated. The document can also name a surrogate, ensuring there’s someone legally empowered to assist you and uphold your wishes.

A well-drafted incapacity document can accomplish several, specific objectives:

• A Healthcare Power of Attorney appoints an agent to make medical decisions for you.
• A living will outlines your choices for end-of-life care, such as your preference for a natural passing or more medical interventions.
• A HIPAA authorization lists who can access your medical information.
• A Financial Power of Attorney appoints an agent to act on your behalf regarding financial matters.

For married couples, incapacity documents play a crucial role in granting access to their spouse’s medical records. Through HIPAA authorization, spouses gain legal rights to access protected health information, including details about physicians, health status, and location. Well-drafted documents also empower spouses to make medical decisions for one another. Rules vary depending on where you live; in 35 states, spouses are automatically recognized as default surrogates for medical decision-making if no agent is appointed.

Moreover, spouses hold the right to inherit certain assets from each other, such as joint tenancy property, where they become sole owners upon the other’s death. However, these privileges terminate upon the loss of a spouse. Therefore, it’s crucial to prepare incapacity documents that designate new owners in the event of the surviving spouse’s death.

Incapacity planning is especially important for women, who often outlive their husbands. Statistics indicate that in the U.S., the majority of Alzheimer’s disease cases – nearly two-thirds or over 6 million – are among women.¹ Moreover, projections indicate that 64% of women reaching 65 will require substantial long-term care in their later years.² This trend is underscored by the fact that approximately 70% of residents in assisted living facilities are women.³

End-of-life planning

When you pass away, your assets can be handled in one of three ways. First, without a will or estate plan, your heir may resort to probate – a court-supervised process for distributing your assets, settling debts, and validating your will if you have one. State statutes usually determine asset distribution in such cases.

Second, a living will can designate your heirs and express your medical treatment preferences if you become incapacitated. However, a will typically does not bypass probate.

Thirdly, trusts offer an alternative to estate planning. Trusts generally avoid probate and allow you to specify asset distribution among heirs. Although trust-based planning simplifies the process for heirs and safeguards assets, it may entail time and cost for implementation and upkeep. Nevertheless, trust-based planning can streamline asset distribution and potentially reduce estate taxes.

What surviving spouses need to do

Following the death of a spouse, the surviving partner often feels a strong inclination to honor the wishes of the deceased. However, if they assume the role of primary caregiver for children, they may need to develop new strategies to ensure the children’s long-term well-being. In addition, remarriage can introduce complexities to blended families, requiring careful asset allocation between different familial lines. In addition, the surviving spouse may aim to simplify their estate plan to streamline administration.

Understanding and managing estate taxes is crucial for the surviving spouse to ensure they can effectively manage their inheritance and preserve their financial well-being. If the estate’s value exceeds certain thresholds, estate taxes may apply, potentially imposing significant financial burdens. Consulting with an advisor can help the surviving spouse manage their inheritance efficiently and minimize tax burdens.

Retirement wealth transfers

When it comes to trust planning, retirement accounts can create unique challenges. Assets in individual retirement accounts (IRAs), 401(k)s, and other qualified plans stay outside the trust and can be transferred to beneficiaries using the designation form or a retirement trust. Utilizing either option allows beneficiaries to extend their distributions over time, potentially reducing immediate tax burdens and fostering greater growth within the retirement account.

A beneficiary designation facilitates the transfer of retirement assets directly to the designated beneficiary upon the account holder’s death, bypassing probate. Subsequently, the beneficiary can determine the timing and method of accessing the funds.

Depending on its structure, a retirement trust can also bypass probate and provide enhanced protection and control over the beneficiary’s access to the assets. While assets still need to be distributed within 10 years under both options, a retirement trust permits continued retention within the trust, benefiting from specific provisions tailored to such arrangements.

Social Security for the surviving spouse

The death of a spouse can bring financial hardships without adequate planning. While initially designed as a safety net, the Social Security Administration extends survivor benefits to provide financial support to surviving spouses and children following the death of a loved one. Eligibility for these benefits varies depending on several factors, such as the deceased spouse’s earnings.

Planned gifting

Each year, you can gift up to a certain amount without facing taxes. But if you go over this limit, it eats into your lifetime exemption which covers both estate and gift taxes. For 2024, the annual gift tax exclusion is $18,000, and the lifetime exemption is $13.6 million.

Portability of estate and gift tax allows a surviving spouse to inherit any unused portion of their deceased spouse’s exemption. This means they can effectively double their exemption amount for estate tax.

Creating estate and legacy plans is a critical part of any long-term financial plan. It provides the necessary tools to guide your loved ones and safeguard your legacy. For more than 35 years, Mercer Advisors has been helping families amplify and simplify their financial lives by integrating financial planning, investment management, tax planning, estate planning, insurance solutions, and more.

¹ “More Women Get Alzheimer’s Than Men. Why?” Alzheimer’s Association ALZ Magazine, Fall 2020.

² Painter, Kim. “Understanding Long-Term Care Insurance.” AARP, 6 February 2024.

³ Facts & Figures. National Center for Assisted Living. Accessed 18 April 2024.