Your husband is dead. Your wife is dead. If you are married, you could hear one of these phrases at any time, no matter the age of your spouse. Are you prepared for what could well be the most stressful event of your life?
Considering the future without one’s “better half” is an unpleasant subject that, understandably, many would rather avoid. But some planning – while both partners are alive – can be of immense benefit to the spouse who lives longer. Odds are that this will be the woman. Statistics Canada has found that, at birth, the life expectancy for a female is 4.6 years longer than for a male; at age 65, it is 3.2 years longer.
An important aspect of planning for the unexpected death of a spouse is reviewing and, if necessary, updating both partners’ wills and powers of attorney for property and for personal care. The beneficiaries for RRSPs or RRIFs should also be checked.
Andrea Margles, whose law firm has a large wills and estates practice, recommends that wills and powers of attorney be kept in an accessible place and the executor be made aware of the location. She advises that families should know in advance of any funeral and burial wishes as wills are often only read after the funeral and burial.
How will the surviving spouse support herself and any dependents? While expenses will be less than for a married couple, some significant household expenditures such as property taxes and insurance will remain the same. As part of the planning exercise, couples need to put together realistic estimates of the income that a widow/widower would require and the ongoing income that she/he can expect to receive.
In the case of retired couples, the household income could be lowered significantly if one spouse dies.
• Any pension from the deceased’s workplace may continue, but likely at a reduced rate. The survivor’s pension benefit is typically 50 or 60 per cent of the full pension.
• The maximum anyone eligible for the Canada Pension Plan pension and the CPP survivor’s pension can receive is one full CPP pension.
• The deceased’s Old Age Security benefit will no longer be paid.
• Income taxes may be higher. For example, if a deceased man’s RRIF is transferred to his wife, the mandatory withdrawals could push her income into a higher tax bracket.
In the case of a spouse dying while still employed, the surviving spouse may be eligible for survivor benefits from the employer. This could be a lump-sum payment or an ongoing pension based on his final salary. In either case, the money is unlikely to completely replace the departed person’s salary.
If there is a gap between the survivor’s estimated required income and her expected income, existing savings such as RRSPs, RRIFs or other investments may make up the shortfall. Or, possibly, the survivor could return to work. Otherwise, life insurance should be purchased to fill the funding gap. Permanent life insurance will pay out a benefit when the policy holder dies, no matter his age. Lower-cost term life insurance offers coverage to a specific age, such as 65. Hiring an experienced broker who deals with several insurance companies is a good way to learn about the various coverage options and obtain suitable insurance at the best price.
Families with young children need to plan for an additional scenario: What would happen if both parents died suddenly or could no longer care for their children. Parents should identify a trusted relative or friend who is agreeable to being the children’s guardian and name that guardian in their wills. They should also make sure there will be enough money in their estates to care for the children and pay for their education. Again, buying life insurance could resolve any funding gap.
According to Jason Heath, a financial planner at Objective Financial Partners Inc., the biggest mistake many couples make is not ensuring that both spouses are knowledgeable about the family’s financial affairs. An up-to-date inventory of family financial data can help overcome this shortcoming. The inventory should include information such as bank accounts, insurance policies, property deeds, vehicle ownership, mortgages and other debt, social insurance numbers, marriage and birth certificates and credit cards along with the location of all relevant documents. Both spouses and the executors of their wills should be aware of and have easy access to the inventory.
Depending on personal circumstances, other matters such as care for aging parents may need to be addressed when planning for the unexpected death of a spouse.
Having a plan in place to take care of your loved ones after you are gone could be your best legacy.
Gail Bebee is the author of No Hype-The Straight Goods on Investing Your Money.