Financial blind spots can hurt when a spouse dies

If you’ve never managed the household finances and your spouse suddenly dies, it can be overwhelming doing it by yourself. Jacob Gaudet from Private Wealth Management breaks down the steps.

Jacob Gaudet

Common Cents

In most relationships, one spouse typically makes most or all the household financial decisions and manages the family’s finances. While this can be fine while both spouses are alive, what happens if the person who manages the finances dies first?

Let’s look at the potential problems that the surviving spouse might come across, how they could make an already emotionally draining time even more difficult, and how you can prepare yourself now so that you’ll be better able to cope with your family’s finances in the future.

When it comes to your household finances, ignorance is certainly not bliss, especially when your spouse dies. Not understanding how your finances work or even how bills get paid can lead to some of these common issues.

Your spouse may have set up many (or all) recurring bill payments with pre-authorized debits. If this was done from their own bank account (rather than your joint account) these bills would no longer be paid after your spouse’s death (banks freeze bank accounts on the death of the sole account holder).

You would need to contact all service providers (including your bank, credit card companies, hydro, natural gas, municipality, etc.) and make sure bills are paid from your account going forward. Ideally, set up pre-authorized debits, so you never miss a payment. 

With reduced income, you may find it difficult to pay your household expenses on one salary. Also, if you’ve never been responsible for household budgeting, it could be hard to work out how to balance the books and keep your finances in the black.

A good budget will help you to take control of your spending, save more and be better able to cope with financial emergencies. 

If you’ve never dealt with the household finances before, and your partner made all of those decisions, once they’re gone, you may start to fall behind on your own retirement goals, especially if they had a higher income and more savings than you.

You should create a new retirement plan, based on your single source of income. This plan should reflect your retirement goals, rather than collective goals.

Also, your investment style and appetite for risk may be very different from your partner’s, so the new plan should take this into account. If you played no part in creating the previous investment plan, you may not understand how it was set up or how its investments work. Being involved in your own retirement plan will improve your financial confidence.

If insurance payments were made from your spouse’s single bank account, you’d need to make sure that payments continue from your bank account. If you miss an insurance payment, your insurance could be voided, which means that you won’t be covered.

This is important for life, auto and home insurance. Contact your insurance company to ensure your coverage remains in place.

When a married person dies, the surviving spouse can apply to the Canada Pension Plan (CPP) to receive survivor benefits. You may be eligible for a death benefit, survivor’s pension, or a children’s benefit.

Many retirees receive private pension payments, either from a pension they set up themselves or through a company pension. You should contact your spouse’s pension plan provider and ask for information on how to apply for survivor death benefits.

With only one income to manage potentially your biggest debt, maintaining mortgage payments could become a challenge. If your spouse had life insurance (privately and/or through the company they worked for), the payout might be enough to pay off the mortgage in full, which would take a big weight off your shoulders.

If that’s not the case, you would need to create a new budget to allow for the new circumstances of paying your mortgage with one source of income. Alternatively, you could consider moving to a smaller home to make the payments more affordable.

How to be better prepared for a spouse’s death

The first step is to better understand your household’s finances; get involved with financial decisions and learn all about your household bills and how they’re paid.

Make sure you’ve both reviewed the beneficiary designations for relevant savings plans (such as RRSPs and TFSAs) and insurance coverage, with your Gaudet Group Advisor. Depending on your circumstances, naming your spouse as a beneficiary may or may not be a wise move. Your Advisor will be able to advise you on the best course of action.

Improve your financial literacy. Understanding how finance works is the first step to becoming more financially confident. GaudetGroup.ca has a substantial library of financial literacy resources to help you get started!

Make sure you both have sufficient life insurance in place (for example, with enough coverage to pay off the mortgage). Learn more about insurance here.

Create a folder that contains all your financial documents, including details on how the bills are paid, workplace accounts (such as RRSPs, TFSAs, shares, life insurance, etc.), wills and where any online account log-in details are stored.

Given the sensitive nature of this information, this folder should be kept in a safe location; both of you should know where it’s kept and have access to it. You should also consider sharing its location with your adult children, in case something was to happen to both of you.

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Jacob Gaudet is an Associate Consultant on the wealth advisory team Gaudet Group Private Wealth Management. He helps clients get more out of their money, so they can get more out of life. Jacob specializes in six key areas: Investment, Retirement, Estate, Tax, and Insurance, and Mortgage Planning. With more than 60 years of combined experience, Gaudet Group Private Wealth Management is committed to making clients’ interests their top priority.  Do you have questions you’d like Jacob to Answer?  Email him at jacob.gaudet@igpwm.ca or check out his website at GaudetGroup.ca!

Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Advisor.

Insurance products and services distributed through I.G. Insurance Services Inc. (in Québec, a Financial services firm). Insurance license sponsored by The Canada Life Assurance Company (outside of Québec).