Dealing WIth the Widow or Widower’s Tax

| May 12, 2021 | couples' estate planning, estate and tax planning, Estate Planning

“Many couples don’t foresee the possible financial hit if one partner dies, including the tax crunch sometimes called the ‘widow’s tax’,” Jeff Stimpson writes in Financial Advisor, referring to potential tax and cash flow problems faced by women and men after the loss of a spouse.

At. Geyer Law, we agree with Stimpson’s observation that many married couples tend to assign financial and tax jobs to only one spouse. The “designated” man or woman usually takes care of paying bills and accumulating tax documents. While the couple may always file a joint tax return, the “designated spouse” will have been the one communicating with the CPA at tax time. One way in which we try to be of help is to coordinate our efforts with the widowed spouse’s tax advisor to coordinate the overall estate and tax planning going forward.

In addition to the devastating loss of a beloved spouse, there can be many unpleasant financial “surprises” in store for a non-financially-savvy widow or widower:

  • If there are no dependent children, the surviving spouse will need to file as a single taxpayer (possibly at a higher tax bracket).
  • The loss of one income can create a financial shortfall for the survivor.
  • A larger portion of the surviving spouse’s Social security benefit could now be subject to tax.

“I frequently warn people about the solo years after one spouse has passed away,“ Bob Carlson writes in Forbes, naming two more challenges the survivor is likely to face:

  1. the need to maintain the household with one less Social security benefit and perhaps a decline in other income
  2. additional expenses because the survivor needs help the deceased spouse used to provide

For wealthy women in particular, tax and estate planning can represent a “weak link”, ThinkAdvisor.com points out. For them, “What if?” becomes “What now?”.:Women should consider purchasing long term care insurance for themselves as they get older, ThinkAdvisor cautions.

The so-called Widow/Widower’s Tax has a strong psychological element when the spouse who has been less involved with the financial aspects of their life together turns out to be the one left to cope on his or her own, ill-prepared to deal with the financial trauma along with the emotional one.

At Geyer Law, we’ve learned over the years that our work involves providing a lot more than properly executed paperwork. Just as we adopt an empathetic approach in addressing clients’ planning goal, we offer a compassionate approach to assist clients who have become widowed.

– by Cara Chittenden, Associate Attorney at Rebecca W. Geyer & Associates