(upbeat music) - Welcome everyone to the 79th edition of Bogleheads on Investing. Our repeat guest today is Mike Piper. Mike is a CPA and an expert on taxation, estate planning, and social security. Today we're gonna be talking about what to do if you become the executor of an estate with an emphasis on providing a financial guide for surviving biosecurity.

(upbeat music) Hi everyone, my name is Rick Ferry and I am the host of Bogleheads on Investing. This episode, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a nonprofit organization that is building a world of well-informed, capable, and empowered investors.

Visit the Bogle Center at boglecenter.net where you will find a treasure trove of information, including transcripts of these podcasts. I have a couple of announcements before we get started today. The YouTube videos from the 2024 Bogleheads Conference in Minneapolis, Minnesota are now available online at boglecenter.net. All of the sessions were recorded and they're all available for free at the Bogle Center website.

Second, the 2025 conference will be in San Antonio, Texas, the weekend of October 17th through the 19th. It's in a wonderful location and it's gonna be a fabulous conference. I'll provide more information on future podcasts when it becomes available. Today, a special repeat guest is Mike Piper. Mike is a CPA, the author of many books on finance, taxation, and estate planning.

He is also the creator of the Oblivious Investor blog and the creator of opensocialsecurity.com, a free website for calculating your maximum social security benefits. Today, we're gonna be talking with Mike about estate planning and particularly what to do if you find yourself as the executor of an estate, especially if you're a surviving spouse.

Mike recently wrote a book titled "After the Death of a Spouse, "Next Financial Steps for Surviving Spouses." With no further ado, let's welcome back Mike Piper. - Thank you, I'm happy to be here. - Well, it's great to have you. On this podcast, we're gonna talk about something a lot of people don't like to talk about.

In fact, they avoid talking about it and that is what happens in the event of the death of a spouse or a loved one, could be your parent, someone else, where you are responsible for doing the estate. You wrote a book, "After the Death of Your Spouse, "Next Financial Steps for Surviving Spouses." I have this book in my estate planning documents.

As soon as you open up my notebook that I have put together for estate planning, this is the first thing my wife would find or if it's unfortunately if my wife died before me, this is the first thing I would go to because you've done a great job with this book and it really points out a lot of things we need to know but have a tendency to avoid learning about because it's not a really pleasant subject.

Great book, not very long, easy to read as all Mike Piper books are. So we're gonna dive into this touchy topic but one that's necessary. Mike, why did you decide to write the book? Like you said, it's a topic that many people don't like to think about. People avoid it.

And so many people don't take the time to read about it. And so writing a short book, it was my way of hopefully getting people to take the time to read a little bit about it. The other relevant point there is that people who avoid it includes financial writers, right?

There aren't that many books about this topic whereas there are a million books about just how to create a portfolio. There's just a lot less writing about this topic. Let's go ahead and dig into the book. But again, we're gonna broaden it to not just spouses but anyone who becomes a personal representative for someone else who dies.

So if somebody's single, obviously they're not gonna have a spouse. Somebody else will step in. So I'm gonna start out by going to the end of the book and reading what you wrote in the conclusion which is in addition to the burden of grief, the death of your spouse or a loved one imposes a surprisingly large administrative burden upon you.

There's a lot to do. Notifying a bunch of different entities that your spouse or a loved one has passed away, handling the estate administration, filing tax forms, social security changes, taking a step back and looking at your new financial situation, updating your own estate and seeing what changes to be made.

I mean, there's just so much to do. And I thought that was the end of the book. The conclusion that you came to was a good way to begin this conversation. - There's an enormous amount of to-do items that suddenly land in your lap. And unfortunately, this may be the time in a person's life when they would have the hardest time dealing with those to-do items, right?

Just because what they're going through emotionally just makes it that much harder. So it's helpful to have a guide to help walk you through it. - And you divide the to-do list between immediate steps and intermediate steps. - Yeah, there are some things that really do need to happen pretty darn quickly.

However, there's also another long list of things that do need to happen, but which don't need to happen immediately. So they are important, but not urgent. And the reality is that many, many people report this experience, not every single surviving spouse, but many, is that in the days and weeks and even months after your spouse's death, there are various problems like memory challenges and just difficulty making decisions where this person is not someone who would normally have a difficult time making decisions.

And so in many cases, some of these very important decisions, it is actually a good idea not to try to tackle them immediately, to try to just put it off for a little bit. We're not talking years, but even several weeks or a few months. Yes, take care of the immediate things, but also just work on the grieving that you need to be doing and then tackle them.

- Before we get into the nuts and bolts of what those things are, we do need to go over some terminology, which can be confusing. So I'm just gonna throw the word out and you tell me what the definition is, okay? - Great. - First of all, we all talk about settling your estate.

What does estate mean? - An estate is a legal entity that comes into being when a person dies. So it did not exist, and then when the person dies, now it does suddenly exist. And the estate's purpose is to be the entity that essentially collects that person's assets and then ultimately distributes that person's assets to the appropriate beneficiaries and creditors.

That's the purpose of an estate. - Do states treat estates differently? Is it done differently in California than in Texas or New York? - Yes, that's the thing that's actually an important point and relevant to many of the things we'll talk about today. It varies by state, and in some cases it even varies by county.

So it's really important to learn the specific rules where you live or where the estate is actually being administered, which is not necessarily where you live. But a lot of times we say, "Talk to an attorney." That's sort of this disclaimer that will be at the end of podcast episodes or what have you and people treat it as legalese and they kind of ignore it.

Here, when I say, "Talk to an attorney," please understand that I really, really mean it. It's very valuable to speak with an attorney who has expertise in this topic in the appropriate jurisdiction. - Good point. Okay, the person who will administer this estate is called the executor. The executor is a person named in the will to administer the estate.

In some cases, if a person dies without a will, or if somehow they managed to create a will without naming an executor, the court would appoint somebody and then we call that person an administrator. But collectively, these people, whether it's an executor or an administrator, collectively we generally refer to them as the personal representative of the estate, meaning it's the personal representative whose job it is to administer the estate.

- When a spouse becomes the executor, are they referred to as the personal representative or are they referred to as something else? - They would be an executor. They would also generally be referred to as a personal representative of the estate. It's a catch-all phrase, basically. - Okay, very good.

I'm gonna jump ahead a little bit here. You discuss you have to apply to become appointed as a personal representative. Explain that. - So the will, assuming there is one, if it has named you as an executor, the court still needs to essentially agree that yes, you could be the executor.

You could be the personal representative of the estate. Because something that happens is sometimes maybe multiple people are named as executor and one person chooses not to serve as the executor, or maybe one person is named as the executor, but then that person chooses not to serve and so the court needs to pick somebody else.

So ultimately, a court needs to be the party that says, okay, now this person or this entity, or in some cases, these multiple people, are going to be the personal representatives of the estate. And so until you get that official documentation that you are the personal representative, you don't wanna actually go and do anything on behalf of the estate until you've been officially told that yes, you have the right to do that.

- So how long does it take? Because you have these immediate things that have to be done. And how long does it take for the court to look at the will and say, you're the executor, or appoint someone as the personal representative? - Generally, it's a very fast thing because in most cases, this is not something that's very controversial.

The surviving spouse or one of the decedent's children is named in the will as the executor and that person is willing to do it and nobody voices any objections. The court isn't going to jump in and say, oh, I don't think this person should be the executor, it should be this other completely different person.

So generally, it's a pretty quick process. - Let's back up. How do you get in front of the judge? - So it's not necessarily an in-person thing. In many, many cases, you're not standing in front of a judge. This is a paperwork process. - Okay. - The actual specific details though, this is another thing where it's going to vary.

Are you filling out a form on a website? Are you submitting this particular documentation to this particular state or county entity? It's going to vary by state exactly what you need to give to whom in order to kick off that process. - And of course, whoever is named as the personal representative, spouse, nephew, niece, uncle, friend, brother, sister, parent, has a certain fiduciary duty to whom?

- The personal representative of the estate has a fiduciary duty to all of the estate's beneficiaries, meaning the personal representative has to put the interests of the beneficiaries ahead of their own interests, other than to the extent that they themselves are a beneficiary of the estate. - Now, some assets don't need to go through probate because of the way that they're titled or have a beneficiary attached to them.

So can they immediately move or does it take the executor to do it? First of all, explain what these assets are and then how they actually move. - Sure, so a very common one would be an IRA. When you open an IRA somewhere, the brokerage firm is generally going to ask you to fill out a beneficiary designation form.

And so you say that it's my spouse or my kids or my niece and nephews or whoever it is that gets these different percentages of the account. So assets like that, so an IRA or a 401(k) that similarly is gonna have a beneficiary designation form or an annuity or a life insurance policy with a death benefit.

Again, it's gonna have a named beneficiary. So any of these things that have named beneficiaries, as well as if, for instance, you have a bank account that's titled with the payable on death beneficiary designated. So any of those things, they don't go through probate. They basically just go directly to the named beneficiary or beneficiaries without needing to go through probate.

In theory, the executor or personal representative is not responsible for that process because their job is to handle the probate estate. But as a practical matter, in many cases, that person may also be the beneficiary. And so they're the one contacting the brokerage firm that has the IRA to notify them of the death.

So in many cases, the executor is the one who is contacting all the relevant parties to kick off the transfer process. - One of the things you talked about was payable on death, which is a beneficiary on a bank account. And there's also transfer on death, which would be something you could put on a brokerage account if it's not in a trust, or you could put it on real estate in many states, not all states, but many states.

You could have a transfer on death deed and go directly to that person. And real quick here, what if that person is a minor? - Yes, then we have a situation. In many cases, you don't want to do that to begin with, generally speaking. It would be preferable to designate a trust as the beneficiary and then designate the minor as the beneficiary of the trust.

But in general, if assets are left to a minor, then there's going to be a guardian whose job it is to administer those assets for the benefit of the minor. - But I do want to get into trusts a little bit more, because trusts are kind of special entities.

- And many people have questions about whether they should have a trust, should not have a trust. - Talk about the three parties to a trust and then using them for avoiding probate. - Yeah, so a trust is a legal entity that can own assets, is basically what a trust is.

And anybody who wants to can create a trust. And there are three parties to a trust. There's the grantor, who is the person who creates it and contributes assets to fund the trust. There is the trustee, who is the person whose job it is to manage the assets of the trust.

And they have to do that for the benefit of the beneficiary. And that's the third party to the trust, is the beneficiary. And that is the person for whose benefit the assets in the trust are being managed. There's a couple interesting points about this, is that for those three parties, the grantor, the trustee, and the beneficiary, they don't have to be different parties.

So a very frequent thing for a person who creates a trust is they set it up, they are the grantor. They make themselves the initial trustee, so they still have the power over all of the assets to decide what investment decisions and how the money gets spent and so on.

And they are the beneficiary. So the assets are in the trust for the benefit of themselves. So when that's the case, it's not all that different than just having owned the assets in the first place. But then the point is, you would then also have a successor trustee in place.

And so that would be the person who will take over managing the assets when you no longer can, either because you have died or you've become incapacitated. And then you would have successor beneficiaries. And those are the people for whose benefit the assets would be managed after your death.

And so often that would be your kids or your grandkids, or it could be a nonprofit organization or what have you. And so the general idea of a trust is to exert some sort of control over the assets after your death or incapacitation in some way and for some reason.

And the list of reasons is long and varied, but that's the general idea is that you're putting this, creating this entity that can own assets, and then we can assign these different powers and rights to different people. - By the way, there are different trusts that avoid probate and there are trusts that do not avoid probate.

It's very interesting. I do wanna get into this right now because if you open a trust while you're alive and you fund it and then you die, that does not go through probate, correct? - Correct. If you have assets in a trust and there's a named beneficiary of the trust, then the assets will just go to that beneficiary completely outside of probate.

- But the assets have to be in the trust. I mean, you could create a trust. I could create the Rick Ferry Trust and I have a brokerage account with my name on it, individual brokerage account, that in my will, I say, okay, when I die, I want the assets of this brokerage account to go into my personal trust.

But the only way those assets are gonna get into the trust is if it goes through probate, correct? - Yes. You've named the trust as the beneficiary of the account in your will. So probate is the process through which the terms of the will actually are implemented. So if the will says the assets are going from this account into the trust, then yes, it has to go through probate in order for that to occur.

- And it kind of defeats the purpose. I always thought that why would you wanna do that? Why not fund the trust now? You put your house in the trust, your real estate, your brokerage account, put that in the trust now while you're alive, rather than waiting till you die.

If the purpose is to avoid probate. - If the purpose of the trust is to avoid probate, then absolutely, we want to fund the trust with the assets prior to death. No question about it. - I have to say, after so many clients, Mike, that I work with, their attorneys didn't set it up that way.

They wrote the will so that the will creates the trust, and then the will funds the trust. And this has a term. What's the term of this? - So there's a testamentary trust, which is where the will creates the trust, just like you said. So we have to probate the will in order for the trust to be created in the first place.

And then the will also says, and now these assets go to the trust. - And there are so many people I talk with who have this as part of their estate plan. And I say, why are you doing it that way? Why did your attorney set it up that way?

The whole idea is to avoid probate with these assets. And I finally asked my own estate planning attorney, and he goes, oh, well, that's the Trust Attorney Job Security Act. That leads to more billable hours. - I guess I'd back up a step and say that there are various very good reasons to have a trust, other than just avoiding probate.

There could be reasons where, you know, we simply don't have a need for the trust until that point. Still, it might, even in some of those cases, it might have made sense to go ahead and create the trust now, especially if it's a revocable trust. So it's not like we're, you know, losing any flexibility here.

But there are a whole lot of different reasons why a person might want to have a trust. And given how varied the number of reasons are, the appropriate setups are similarly varied. - Funny, I asked the clients, well, how come it's set up this way? How come you're not funding the trust now?

And they said, well, I don't know. I don't know why. It's my way, my attorney said to do it. Have the will set up the trust and then fund the trust later when we die. And I said, well, then it goes through probate. They go, yeah, you know, we don't want the assets to go through probate.

I said, well, you're not doing it right. - Another thing I'll back up and say though, is that it's very, very frequently, the attorney create the trust now. It's not a testamentary trust, but the client then forgets to fund it. They just never get around to moving the assets into the trust.

That happens all the time. And so that's just a mistake. - No, I see that all the time. You're absolutely right. We're gonna go back to the beginning again. I know we get off on a tangent. That's just the way these things are gonna go today with this podcast.

So the executor. You think you're the executor of an estate, but maybe you don't know. If you're a spouse, you probably are, but you have to find out who the executor of the estate is. And for that, you would need to find the estate documents. Talk about where to keep estate documents and who to give access to.

I'm sure there's a lot of estate documents that are never found. - Yes, so your will and other estate documents, you want the attorney who helped you prepare them to have a copy. And you want to keep a copy for yourself, ideally in somewhere that is reasonably easy for some appropriate party to find if they need to.

But also, frankly, I would say, go ahead and give a copy in advance to whoever you're naming as the executor. And certainly if you're giving anybody power of attorney or something like that, give them that document. Don't rely on them finding it somewhere on your hard drive. - What I did is I opened up a Dropbox folder and I put all my documents in a Dropbox folder and then I gave the link to my children.

So the documents are available. But my question is, they're not the signed documents? They're just a PDF, is that okay? - That's going to vary what one entity wants to see as opposed to another one. In many cases, they will want the actual hard copy document, but it's going to vary from one entity to another, what documentation they feel like they need.

- Okay, well, they know how to get that too. Okay, so here you are. You are now the executor of an estate or personal representative, and you got to get organized. So what do you do? - I think, personally, step number one is just create a filing system, both on your computer for all the various PDFs that you're going to have, and there's going to be a million, and then also a physical filing system for the paperwork that you're going to have, and there's going to be some of that as well.

And so you've got retirement accounts, bank accounts, insurance policies, all the different categories of things. Create that filing system. In addition, take notes. This is the time to start taking notes, and I would encourage you to take notes on everything, literally everything. Every time you talk to anyone about anything or make any significant decision, take notes about it.

Take dated notes. There's two reasons for that. Number one is, of course, there's the liability. You always want to be able to say, this is what I did and why. But the other reason is just more basic, and it is that through this process, you are going to be interacting with bureaucracy and a whole bunch of different bureaucracies, frankly.

You've got the federal government, state government, potentially county government. You've got this bank and that bank and this brokerage firm and that insurance company, and they all want this different documentation. They all need you to jump through the different hoops, and it's really, really easy. Even if you weren't going through a period of grief and the difficult challenges that that imposes on you, it's still very easy, if you aren't taking notes, to lose track, to just drop the ball on one of those processes.

Forget that, oh, this company needed that, or which of these two companies was it that was still asking me for this particular documentation or whatever it is? So just take notes so that you know exactly where you stand with the appropriate process for your state's Department of Revenue and for the Bank of America account that you're trying to have transferred, and all the different things.

You want to know exactly where you stand for each of the processes and exactly what the next step is. - Okay, we've started to take notes. We've created the filing system. We have a plan. - What documents should we be getting together? - Right, so as we're first going through everything, obviously, we need to find the will is the first number one thing that we really, really want to find.

Track that down. While you're going through that process, you're probably going to encounter a whole bunch of other stuff, too. You're gonna start to see brokerage statements, insurance policies, insurance statements, whatever financial statements you find, keep them. Whatever you're looking for one document, whatever other documents you find, go ahead and file them now.

Don't just ignore them, because there's gonna be some point later we are going to be looking for that document. And if you just go ahead and file it now, you've made your life easier in the future. - Well, I would imagine one of the first documents you want to get is a death certificate, correct?

- Yes, so the funeral home, in many cases, or if the person, the decedent, is being cremated, then the entity that is in charge of their remains is generally going to prepare the necessary documentation so that the death certificates will be created. And they will often ask you how many copies of those you want.

Alternatively, you can go ahead and get them from your state or county's applicable government entity. Go ahead and look, by the way, what the fees are, 'cause they're often different from one entity to another. You've got, you know, and you're getting the same document. So go ahead and look at that.

Go ahead and look at what the wait time is. Sometimes one entity can get it to you faster than the other one. And they're going to ask you how many copies you want. - And how many do we want? - Right, that's an interesting question because in the book, I said, "Ask for a lot, 20 to 30." And then the feedback I've gotten is hilarious.

You've got several people who said, "Oh my goodness, that's ridiculous. "I only needed three or something." And then a whole bunch of people who said, "Yes, absolutely, make sure to ask for a ton." And it's just because it's going to vary. Because again, some entities will want the actual, you know, certified death certificate.

Other entities are perfectly fine with you emailing them a PDF. It's just going to vary in a way that's not necessarily super predictable. Also, there's generally going to be a fee per copy. However, it's in most cases, not going to be exorbitant. Here in Missouri, it's $11 per copy.

Getting another handful, you know, several more than you might expect to need costs a little bit, but it's not too big of a deal. And if it saves you weeks of waiting down the line when some entity needs it and you don't have any more, it's usually going to be worth it to just ask for somewhat more than you expect to need.

- So I'm just going to go through a laundry list here of documents to acquire or look for. We need the death certificate. We need the will and the other estate planning documents. We need whatever information you can find about pensions, social securities, insurance, birth certificates, income tax, state income tax, deeds on your home, other property, vehicles.

I mean, you're just in this information gathering mode. - Exactly. So if you are the personal representative of the estate, one of your primary jobs is to take an inventory of the estate's assets. And so a part of that process is just collecting, exactly like you said, it's an information gathering process.

We need to find all of the accounts that there are. And maybe, hopefully, you know offhand what all of those accounts are. But in many cases, especially when the personal representative is not a spouse, they're a child, you don't necessarily know where mom and dad had all of their different financial accounts.

- Right. - It's a bit of a treasure hunt. Whatever we can look through, basically. If we get access to their email, we're going through that. We're looking through their hard drive, we're looking through their mail, whatever it is, to try to find whatever evidence there is of accounts.

- You know, I don't know how many times I have conversations with people about simplifying their investment. You know, you've got four different IRA accounts or three different old 401(k)s. And the 401(k) you're currently in is perfectly fine. You have the low-cost target date index funds. I mean, they're really great investment options.

And you've got these IRAs out there, rollover IRAs, and old 401(k)s, 403(b)s. And I'm saying, just get all this stuff in one spot. Reduce the number of custodians you have. Reduce the number of redundant accounts that you have. And even the securities, you know, reduce redundancy of securities within those accounts.

Simplifying your investment portfolio, not just for your sake, but for whoever's gonna take over this, makes it so much easier. - Absolutely agree. Simplification is a big favor to your surviving spouse, your kids, whoever it is, who's going to ultimately be handling this. - Okay, let's go ahead and go to the next thing.

So we're getting all this information. Now we have to start talking with people. The social security checks may still be coming in, or pension, or something's going on. You want to try to get the insurance money. So you've got to start notifying people. - First step, make a list of the different entities that you think you'll need to notify.

And just like you said, social security administration, anybody else paying benefits, you know, if the decedent had a pension, for instance, or a lifetime annuity, any place that the decedent had a financial account, there's a long list. And so that's step number one, is just in your records, decide these are the people who I will need to notify.

And then really in most cases, it's just the phone call is where we start. - Oh, really, they won't need a death certificate to, let's say, take the name off something? When do you need it? When don't you need it? - Sorry, they generally will need a death certificate.

The way we start the process is with a phone call. - Oh. - Talk to a human being and ask them what it is that they need to see, what they need you to do, and then just go from there, is generally how I would suggest doing it. But yes, in most cases, they are going to need to see a death certificate.

In some cases, they're happy with an emailed PDF. In other cases, they will want a physical copy. And so that's the reason to begin with why we ask for multiple copies of the certified death certificate. - Let me ask a technical question here. Let's say that you're settling the estate for your uncle or your aunt.

And they have a house, and they need to pay taxes, they need to pay bills, need to pay utilities, 'cause the house will eventually be sold, but it's gonna take a while for the house to sell. So you need to contact the utility companies and say, this person has passed away.

If you try to automatically bill their account or whatever, it's not gonna work anymore because they're not alive anymore. How does it get paid? Who do they bill? - Yeah, what a lot of people do is give them an alternative credit card or an alternative bank account. A challenge here, though, is that if we have an estate, for instance, it's going to be split up among several different people.

And now if you give them your personal credit card or something like that, then we have an equity issue, right? Where one person's paying the costs when really it should be borne appropriately across the estate. Generally, once you've been named as the personal representative of the estate, you will want to get a bank account for the estate.

Of course, that process can take some time, but generally that's what you wanna do. - And a checking? - Exactly. A checking account for the estate. - Debit card. - Exactly. So that way we can have the assets moved into that account, and then we can actually use that account to pay these bills.

- That does take a little bit of time, and in the meantime, you may be paying it yourself, and then I guess you have to get reimbursed from that account eventually. - Yeah, there may be a gap period in the middle where we are getting things set up, where we need to come up with some other solution.

But yes, we want to get a checking account for the estate so that we can pay the estate's bills out of that account. - So with this bank account that we're supposed to be opening, whose social security number did we put it on? I mean, the person died, so what do we do?

- Right, the estate, we want to get a tax ID, also known as an EIN, Employer Identification Number. And the IRS website just has a form that you can fill out to do that. It's easy, it's free, only takes a few minutes. So that's a step that we'll want to do.

If you are the personal representative of the estate, you will want to get an employer identification number for the estate. It's essentially, you could think of it as a social security number for the estate. - And then this is the number. And then when I go to the bank to get the bank account, is the title of it, you know, the estate of Jane Smith?

Or is that how you title the account? - Something to that effect. Different banks or different brokerage firms or whatever are going to have different rules for exactly how they title it. But yes, it's going to be something to that effect. And then they will use the estate's tax ID in place of a social security number.

- This seems to be like one of the most important things to do, right, is to get this bank account set up so that you could pay bills, have money that is owed to the person who died come into this account because it can't go into their personal account anymore.

It has to go somewhere else. - Right, any income that otherwise would have been the decedent's income is now the estate's income. So it should be being paid into a bank account for the estate. And similarly, any of the estate's expenses, we really want them to be paid out of the estate's assets rather than somebody else's assets.

It's much clearer record keeping, prevents any number of different potential problems down the line. - How does it work with social security? So spouse dies and you need to stop social security for that spouse. Now, you might be taking that spouse's benefit because it's higher than your benefit. How does it work through the social security office to set that up?

- Yeah, so you need to call them. We need to let them know that this person has died. And they are going to stop payment of benefits, obviously, if that person was receiving benefits. And the month in which the person died, that payment, if it has already been made, will have to be retracted, basically.

So if a person died in February, the benefit for February will ultimately need to go back to the SSA. And that means because there's a one-month lag, so the benefit for February is the benefit that's paid in March. That benefit that is paid in March has to go back to the SSA.

- And it doesn't matter if you died on February 1st or February 28th. - Correct. So that's step number one. We need to let them know so they can stop payment of benefits. Then there's also the question of, okay, well, now do we need to file for any other types of benefits?

If the decedent had a minor child or an adult disabled child, then that person is likely going to be able to receive a benefit on the deceased person's work record. And in most cases, we wanna go ahead and file for that benefit immediately. If the surviving spouse has a child in their care who is receiving child benefits on the decedent's work record, then that surviving spouse is likely going to want to file for what we call mother/father benefits.

If there are no children, no minor children or adult disabled children, then the only type of benefit that we're now really concerned with is a surviving spouse benefit. And that, you have to be at least age 60 or age 50 if you're disabled. And the most important thing to know about surviving spouse benefits is that if you're eligible for that and you are eligible or will be eligible for your own retirement benefit, you can file for one or the other and then let the one that you did not file for continue to grow.

Several years ago, there was a similar strategy available for spousal benefits and that went away. Congress changed the rules, but they did not change the rules for surviving spouses. - Let me understand. So I worked for 40 quarters. I'm going to get my own benefit, but I haven't filed yet.

My spouse dies. I can file for the surviving spouse benefit and get that now, but not file for my own. I can wait for my own to grow till age 70 and then I can get more. Is that what you're saying? - That's exactly what I'm saying. If in that example, we assume you're at least age 60 so that you're eligible for that survivor benefit.

- And it is age 60, it's not 62 for a surviving spouse. - Correct. It's 62 for a person's own retirement benefit, as well as a spousal benefit when both people are still alive, but for a surviving spouse benefit, it's age 60. - So from here, I want to get into taxes.

Many different filings that need to take place. First of all, you've got a person who died and you need to file a tax return up until the date of death, correct? - Yes. It's a little bit different if they were married. - Okay. - If you have a married couple, then they're still going to file, or at least they can file a joint return for that full year.

So if you have husband and wife, let's say the husband dies on June 27th, then it's going to be a return that includes all of the wife's income for the year and the husband's income up until the date of death. So that's what's going to go on their joint return for that year.

And then separately, the personal representative of the estate is going to have to file an income tax return. Now this is Form 1041, as opposed to Form 1040. They're going to file an income tax return for all of the estate's income for the year. So that would basically be beginning immediately after the death.

- But just money that goes to that person who passed. - Right, it's the estate's income. So that could be income that would have been the decedent's income that is now paid to the estate. It's also, you know, interest and dividends on taxable assets or so on. - Personal brokerage account of some sort.

- Right, exactly. There's the tax return for the individual or the couple, and then there's the income tax return for the estate. And then finally, the third thing is the estate tax return. And you don't necessarily have to file this because most estates are well below the federal estate tax threshold.

However, even if the estate is well below that threshold, it is often a good idea anyway to file it because what that lets you do is it lets the surviving spouse use any portion of the estate tax exemption that was not used. It lets the surviving spouse use it later, essentially.

So that is a pretty compelling reason to file Form 706, which is the estate tax return, even if the decedent's estate was well below the applicable threshold for that year. - The deceased's tax return has to be filed what date? - That's, it's just the regular income tax filing.

- April 15th? - Right, yeah, plus extensions if applicable. - What about the estate tax return? They died June 27th. That also needs to be filed by April 15th? - That depends because you can have a taxable year for the estate that is different than the calendar year in some cases.

You can keep it simple, make it the calendar year, in which case then it is April 15. But if you elect for a different taxable year, then the due date would be shifted accordingly. - And the estate tax filing, which is different than these other two, when should you do that?

So let's give an example. So your estate is worth $18 million, all total. And so right now the threshold for each individual is 14 million, roughly. So you die, you're going to use your portion. Whatever you don't use goes over to your spouse. But in order for that to happen, you have to file this other tax form.

- Right, form 706. And the deadline for that one is nine months from the date of death. There's also a six-month extension if you request that. - Wow. For somebody who doesn't do the tax returns at home, you have one spouse who's sort of the financial person and the other ones who are the disinterested person, we tend to say.

This is huge burden of an incredible amount of stuff. They gotta have help. - Yes. - Gotta have help here. - Especially in vocal heads, we tend towards DIYers, right? People who like to do it yourself, shun professional assistants to an extent. But really, especially if the surviving spouse, like you said, was the one who was not the financial manager of the household, really it's a good idea to get help with this.

Enlisting a CPA or enrolled agent or tax attorney to handle the actual preparation and filing of the tax returns is a great idea. Having an estate attorney to help with probate is generally a great idea as well. And then potentially, depending on circumstances, engaging a financial planner to date that person's financial plan as needed based on the new circumstances can be a good idea as well in some cases.

- I wanna get into an area of succession planning, getting back to my point that there's often a financial person in the family and then there's a disinterested person, someone who doesn't wanna do it. My wife, for example, she won't listen to this podcast. Somebody's going to have to help her manage all of this money and believe me, I've kept my stuff very, very simple.

Try to consolidate accounts, consolidate custodians, simple investments, try to keep it simple. Which has worked wonders, by the way, as far as a rate of return. I mean, I've done really well. I've gotten my fair share. But she'll need somebody to help her with the portfolio. Now, I've already identified somebody to help her.

She knows who to go to. But a lot of people don't. And I heard so many horror stories about do-it-yourself investors who are bogleheads. And when the person who is the do-it-yourselfer passes, some person who is very friendly to the spouse sits down and, "How's it going?" And often the spouse would say, "It's not going well.

"I've got all this stuff. "I've got all these accounts." Oh, let me introduce you to my person. They're really, really good. They work for XYZ brokerage firm or whatever. And they're excellent. And the next thing you know, the do-it-yourself boglehead is rolling over in his or her grave because the spouse is going to the exact people they've been telling them their whole life to avoid.

What are your suggestions on that? - If you are seeking financial planning assistance, my general guidance is firstly, decide what services do you want. And broadly, I divide this into two categories. There's investment management, right? The person who's actually going to be placing the trades, rebalancing the portfolio and so on.

And then separately, there is financial planning, which is all of the advice. And maybe you want both of those, or maybe you just want investment management, or maybe you just want the financial planning. Any of the above is fine, but first decide what it is that you want because some providers do only one, some do just the other, and some do both.

And as an example, Vanguard Personal Advisor Services. Obviously, as bogleheads, many of us use Vanguard, and so that might be a first place someone would look. They provide investment management for a fee that is much lower than many other places. The financial planning that's included is pretty limited. It's mostly investment management.

There's some advice, but it's not super duper in-depth. And so that could be a great place if you're looking for just the investment management. Conversely, if you're looking for just the advice, then the new term for that is advice only. You would look for an advice only financial planner.

And then conversely, if you want both, then there isn't exactly a term for that, but frankly, that's what most smaller financial planning firms, that is what they provide. In most cases, they're gonna be doing the investment management and financial planning. So that's step number one is just figure out what do you want.

Step number two is what areas of expertise are you seeking? A surviving spouse in your 70s, for instance, the areas of expertise, you want somebody who's skilled with retirement tax planning and managing a retirement portfolio. Whereas if you're a surviving spouse at age 33 with young kids, it's a completely different list of topics.

And so you want somebody who's got the right expertise. And then lastly is just how do you wanna pay for it? There's a lot of choices here, right? There's the old school commission method through a broker dealer, and mostly as bogleheads, that's what we try to avoid. There's assets under management fees.

There's flat fees. There's hourly fees. There's all these different choices. They come with various conflicts of interest, frankly, in most cases, but separate from the conflicts of interest, you just wanna take the time to do the math. If you're considering an assets under management base fee, how much is that in dollars for your portfolio?

It might be less than a flat fee. It might be a lot more. Just do the math. And so those are the broad pieces of advice that I would give for somebody looking for financial advice. I have to throw this in there. People who have listened to my podcast have heard it before.

I've been in the business now for 36 years. And I used to say, I have been told many, many times by many people, "Rick, I'm a do-it-yourself investor, "but I've told my spouse that when I die, "they're gonna contact you." And I say to them, "Well, that's great, "but unless I have a conversation with them "before you die and you make the introduction, "it isn't gonna happen." Because in the 30 some odd years that I have been doing this, I have never once received a phone call, ever.

Not once received a phone call from a surviving spouse that I didn't know personally and that I hadn't had a conversation with. Until last year. And I actually got a phone call from a surviving spouse. My first one. At 36 years in the business, first one who said, "My husband said that I should contact you "if something happened.

"And so here I am." For the do-it-yourself people, if you really want your spouse to go to Vanguard, as an example, there are others out there, but just as an example, to manage the money. You have to have that relationship established before you die. Before you die. Your spouse has to be familiar with it.

They have to understand it. They have to have talked to the people. They have to be comfortable with it so that when they're sitting down with their friend, having a general discussion about how things are going and this comes up, or maybe it won't even come up because it's been taken care of.

And so your spouse won't end up in that very place where you did not want them to go. - Yeah, absolutely agree. Establish the relationship beforehand. - A couple more things I wanna talk about before we end, and these are kind of one-off topics, but this is very confusing.

Inheriting IRAs for spouses, inheriting IRAs for non-spouses. It just seems like the IRS is just making this thing all so complicated. Could you just go through it for us a little bit? - Yes, this topic was complicated when I started working in this field, and then it got more complicated with the Secure Act, and then it has become even more complicated with various IRS regulations.

So I will say, frankly, I think this is an important message that most tax professionals I know, including myself, don't even try to memorize all of the rules. We have sources that we know to go to to look up the appropriate rules in a given set of circumstances. The general idea in today's world is if you inherit an IRA as a spouse, you have choice number one, and this is a choice that only surviving spouses have, is that you can just roll the IRA into your own IRA, and then it's as if it had been your IRA to begin with.

The fact that it's inherited is no longer relevant at all. And, again, you can only do that if you're inheriting it as a surviving spouse. If you're inheriting an IRA from your parent, or grandparent, or aunt, or uncle, or whoever, you don't have that choice. The second option that you have as a surviving spouse is to just leave the account as an inherited IRA.

And the rules for inherited IRAs in terms of the distributions and how much you have to take as an RMD every year depend on a lot of factors. The first factor is, is the beneficiary, so are you, if you're the person who inherited this IRA, are you an eligible designated beneficiary?

And that includes surviving spouses, people who are disabled, anyone who is less than 10 years younger than the original owner, so that also includes anybody who is older than the original owner. So if, for instance, you inherit an IRA from your younger sibling, you're an eligible designated beneficiary. And so people in that category have kind of like the old rules, where it's a stretch over their life.

We're taking distributions based on life expectancy. Anyone not in that category, which in most cases includes kids, if you inherit an IRA from your parents, most likely you're not in that category. You're a non-eligible designated beneficiary, most of the time. - Nieces, nephews. - Yes, yep, or grandkids or whoever.

And in that case, we have a rule that says that the account has to be distributed within 10 years. Now, the thing that's newest here is there's now also a rule that if the original owner, the deceased original owner, had reached their required beginning date, so they already had to be taking RMDs, then in addition to needing to distribute the account over 10 years, you also need to take life expectancy-based distributions over those 10 years.

You have to meet both of those requirements. And that's a new thing as a result of IRS regulations that only became effective in 2025. - But you don't have to use the deceased's age to take the required minimum distribution. You do have the choice of using your own age, correct?

- In that last example, that's correct. There are some cases in which the deceased's person's age is still relevant. One of them, by the way, is in the year of death, if the deceased had to take an RMD and had not yet taken it, then the beneficiaries in some combination will have to take that RMD, calculated as if that person were still alive for that year.

- And this RMD does not go into the deceased's estate. - Right. - It basically goes to the beneficiary, correct? - Yep. - So it's taxable to the beneficiary, not taxable to the estate if they didn't take it yet. - Right, there could be an exception if the estate itself is the beneficiary of the IRA.

Sorry, there's always exceptions. - One more scenario and then we're gonna stop. You inherit an inherited IRA. The person who died had an inherited IRA from an uncle or an aunt or whatever. And now you inherit that inherited IRA. And how does that work? - In that case, you are known as a successor beneficiary.

And the rules in that case are extremely complicated. - Okay. - We need to know, did the original owner die before or after the SECURE Act went into effect? And then we need to know, did the beneficiary, so 'cause now at least one beneficiary has died because you're a successor beneficiary.

Did that person die before or after the SECURE Act went into effect? And then we need to know, was the beneficiary an eligible designated beneficiary or not? And then we also need to know, did the owner die before or after their required beginning date? So the point at which they needed to start taking RMDs.

So it's essentially like a big flow chart. And depending on all of the answers to those questions, then we can determine the answer. And in some cases, we're going to have an answer in which the successor beneficiary is basically just finishing out the initial 10-year period. In other cases, it's going to be the 10-year rule kicks in for the first time.

And so it's starting at that point. It's extremely complicated. So for sure, consult a tax professional. - Not easy stuff, not at all. Well, we've covered a lot of ground in this podcast. Do you have any parting words, Mike? - Just what we started with, I think, which is if you were a surviving spouse, there's a lot you're going to have to do, but you don't have to do all of it immediately.

The things that you do need to start on immediately, sure, go ahead and get started. But the really big decisions, a lot of them, you don't need to rush them. And it's okay to get professional help as well as help from family members. - Well, Mike, thanks so much for being with us today for this complicated but vital information.

- Thank you for having me back. It was a pleasure to be on the podcast again. - This concludes this episode of Bogleheads on Investing. Join us each month as we interview a new guest on a new topic. In the meantime, visit boglcenter.net, bogleheads.org, the Bogleheads Wiki, Bogleheads Twitter, the Bogleheads YouTube channel, Bogleheads Facebook, Bogleheads Reddit.

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