My parents are dead, and I have proof!
Finally—you got the death certificates! Now you can really get this morbid party started.
Life insurance, part II
You’ve already contacted your parents’ life insurance agent—now it’s time to send them a copy of the death certificate. It’s the agent’s job to walk you through exactly what needs to happen—what forms you need to fill out, what other documents you need, etc. Here are some obstacles I’ve come across:
Yes, you need to send the life insurance agent a death certificate—but you’ll also need to provide a death certificate with each claim you make. If your parents had policies with different companies, each company will need a copy.
Your parents may not have properly updated their life insurance policies before they died. My dad had two policies, and both still listed my mom as the primary beneficiary, even though she had already passed. On one of them, I was listed as the contingent beneficiary—to complete the process, I needed to send death certificates for both my dad and my mom. On the other, there was no contingent beneficiary listed, so the payout will go to his estate—as the executor of that estate, I’m still in the process of obtaining a small estate affidavit from the county of residence in order to complete the claim.
If you’re receiving any taxable income annuities, you may need to fill out a W-4P tax form—the agent will let you know. You’ll also have to tell the company what percentage of taxes you want withheld. You can do your own research on this, but a good rule of thumb is 20% federal, 7% state.
You do not have to pay taxes on life insurance payouts—only for certain income annuities, which are different, though many are still handled by life insurance companies. The agent will be able to tell you the difference.
Speaking of taxes—if you are the beneficiary who receives a life insurance payout, but you want to split that money with other siblings/relatives/whatever who were not listed as beneficiaries, you can also give them their share of the money tax free. (Double check this with your agent, but that’s what mine told me.)
To receive funds by direct deposit, you’ll likely need to attach a voided check to your claim forms so they can verify the routing and account numbers. Hope you have a checkbook—I had to dig mine out of storage.
MAKE COPIES OF EVERYTHING before you send in the forms and documents. That’s what your Uber Death Notebook is for.
FedEx can’t send to P.O. boxes—and a lot of life insurance companies use P.O. boxes. The U.S. Postal Service is your best bet. Assuming you can find a working fax machine these days, you can also go that route. (For young’uns who have no idea what a fax machine is, please refer to wikiHow.)
As the companies process your claims, they may contact you with more questions. They may, in fact, ask you for information or documents you’ve already sent. As much as I hate phones, I advise giving them a call; as soon as human interaction has occurred, they resolve the issue quickly.
Apparently these insurance companies have never heard of siblings. If you and other beneficiaries all submit claims related to a life insurance payout or an annuity, it is possible only one of you will receive payments. If that happens, give the company a call—they’ll sort it out.
Bank on it
Your parents almost certainly had bank accounts. Now that you’re in possession of the death certificates, you can finally do something about that. This is one of those situations where you’ll have to physically go to the bank and meet with someone. Ugh, human interaction.
Things will work differently depending on whether your parents had a will or a living trust (or both). But either way, you need access to those accounts. Just explain that to the person at the bank—they have to do this all the time. Things to take with you:
Death certificate
A copy of the will or trust (or both); if a will and you’re going through probate, you’ll need a letter of administration from the court
Your parents’ bank account number (social security numbers and birthdays would also be good to have on hand)
Keys to any safe deposit boxes (my parents had one that was completely empty???)
Uber Death Notebook for scribing/storing paperwork
No two banks have the same policies, but they probably won’t give you direct access to your parents’ accounts. Instead, they’ll move that money into a new account to which you (or the trust) have access. Once the new accounts are activated, you can set up online banking and order checks, which you’ll need to pay off any outstanding debts or bills. (I may be among the last generation taught to write checks in school—here’s a WikiHow article for reference.)
Stocks and...stuff
In the seventh grade, we were forced to do a “stock project.” A classmate’s mom taught us all about the stock market, and we had to pretend to purchase and track stock in various companies.
I learned exactly nothing. I can tell you the difference between a bull and bear market (good vs. bad, respectively, which seems unfair to bears), but that’s about it.
Your parents, however, may have been more adept in the world of Wall Street. Or even if they weren’t, they may have paid someone more adept to do it for them. See anything in their documents that says T. Rowe Price or Charles Schwab or TD Ameritrade or Vanguard or Computershare? That means they had stocks or bonds or funds—and now that they’re dead, YOU have stocks or bonds or funds.
Or you will, once you’ve filled out even more paperwork and submitted even more death certificates.
Here’s a quick and dirty explanation of some common financial situations you might find yourself in courtesy of your parents:
They might have been trading in individual stocks or small groups of stocks on their own—TD Ameritrade and Computershare are some of the companies that offer this.
A mutual fund is when a company pools money from a bunch of investors and buys more stocks and bonds with it than anyone could buy individually. Your parents could have invested in one of these funds rather than individual stocks. T. Rowe Price, Vanguard, and Charles Schwab do more of this stuff.
IRAs/Roth IRAs are retirement accounts—that’s what the R stands for. People can pay into these accounts through work, but sometimes people choose to have separate ones as well, often through companies like T. Rowe Price, Vanguard, or Charles Schwab. In a regular IRA, you put in pre-tax dollars, and you pay the taxes whenever you withdraw the money. In a Roth IRA, you put in post-tax dollars so don’t have to pay taxes when you withdraw the money.
Dealing with each of these financial institutions will be different, but in my experience so far, they’ll help you close your parents’ accounts (paperwork!), and open a new account for yourself (paperwork!), where your inherited stocks or funds will appear. Once that’s done, you can meet with a financial adviser at the company to determine what you want to do with that money.
Keep in mind that if you liquidate these accounts, you’ll have to pay some serious taxes! It’s usually better to do it in smaller increments over time if you can, or just keep investing if it interests you.
The good news is these companies usually let you get the process started online. Here are some links—or you can search the name of the company with the phrase “inherited accounts” online:
Cost Basis: what is it, and why can’t I get it through my thick skull?
I don’t think they taught us about cost basis when we did our seventh grade stock project. Multiple people have tried to explain it to me in recent months—my friend’s dad, my dad’s friend, and some guy at a bank who clearly thought I was stupid. (So what if I am?!) I’ll try to explain it to you as though you’re not stupid.
Cost basis is the price at which you purchase the stocks, bonds, funds—I think it can be literally any asset, but for dead parent purposes, it’s stock stuff. If you buy a stock at $10/share, that’s the cost basis. Let’s say five years go by, and the stock is now worth $100/share. You would need to pay capital gains taxes on $90, since that’s the difference between the cost basis and the current value.
If you’re inheriting stock stuff from your dead parents, you may not want to start with the same cost basis that your parents did—that’s a lot of taxes. So you can sometimes work with the above financial companies to step up your inherited funds to a higher cost basis. In full transparency, I am still trying to figure out how to do this for the funds I’ve inherited, and I will probably mess it up. This article from Investopedia undoubtedly has better information than my summary.
Notary vs. fancy notary
Since you’re neck deep in paperwork, it’s a good time to explain the difference between having something notarized and getting a medallion signature guarantee. You’ll likely have to do both, and the latter is basically a more expensive version of the former.
A Notary Public is someone appointed by the state to legally attest that it’s really you signing this document. If you need to have a document notarized, you should not sign it until you’re in front of the notary. Bring your ID with you. You can usually find a notary at any bank, and often at public libraries. It shouldn’t matter what state you have a document notarized in, and it often doesn’t cost money to have a document notarized—or if it does, the fee is small.
A medallion signature guarantee is a fancy stamp that proves it’s really you signing this document. You have to do this one for anything related to stocks or bonds. You’ll need to bring your ID, and probably a share certificate (proof you now own these shares). Again, you’ll need to sign in front of whoever is providing you with this stamp, so don’t sign until you get there.
It’s a lot harder to find places that provide medallion signature guarantees! Typically the major banks—Chase, CitiBank, etc.—do provide them, but not at every branch, so call ahead. (I called ahead, and it didn’t matter—I was sent to 3 different banks before I actually found someone who could do it.) If you’re a customer at one of these banks, you may end up paying little to nothing. If you’re not a customer, you may end up paying anywhere from $50 to a whole hell of a lot, depending on how much money is in the stocks.
Seems totally fair and not at all like a cash grab.
Little plastic rectangles of doom
Credit cards make life really easy, until they don’t. The good news is you aren’t personally obligated to pay your parents’ credit card debts. Their estate, however, is obligated. And if you’re the executor and/or successor trustee…you know the drill.
You will almost certainly have to call the number on the back of the card to cancel, because they like to make these things as difficult as possible. Once you get a human on the phone, they’ll likely need you to send a death certificate. However, you should talk to them—depending on how much debt your parents have, there are other ways to “pay it off.” For example, they may have accrued enough credit card points to pay it off that way.
But if your parents’ estate isn’t large enough to pay off the debt, that is not your problem—don’t let the credit card company try to tell you it is. You should also keep an eye out for fraud. People sometimes go through obituaries and try to steal identities that way—horrific, but not necessarily surprising.
Do my dead parents still have social security numbers?
Yes and no!
Several months into this process, I realized I should probably let the Social Security Administration know my parents were dead. Their website brought glad tidings: the funeral home/crematorium should have already done that. In certain circumstances, you can also get death benefits—more details at the link above.
That said, you’re going to need to know your parents’ (now defunct) social security numbers for just about every form under the sun. Keep them close by, and be careful where and how you share them—strangers can still use them to commit fraud.
Is the IRS coming for my dead parents?
Try not to let your parents die around tax time, because it’s a mess. My dad died at the very end of March, and I had to file an extension on my own taxes because I was so overwhelmed. But whatever time of year the reaper comes, your parents will have to pay taxes eventually.
The IRS has a page about this on their website. Unsurprisingly, that page is…unclear, to say the least. As it turns out, you basically have to pretend you are your parents and file their last 1040 for them. Not literally pretend—you use their name and social security number, and then you write DECEASED and the date of death in big letters at the top of the forms before you file them. Yep. That’s the actual process our government has developed. Seems legit.
Some tips and tricks:
If you’re having your parents’ mail forwarded to you, you should receive all the various forms you’ll need between January and early March. They’ll be addressed to your parents and usually have something like IMPORTANT TAX INFORMATION stamped on the outside of the envelope.
Yes, you can use TurboTax, H&R Block, or one of the other online filing services—but you’ll have to create a new account specifically using your parents’ info. You can’t create a new profile within your own account because that would be too easy. When you set up the account, it will ask if you’re filing taxes for a deceased person, and then it will stamp “Deceased” on the top of the forms for you.
Might be easier to hire an accountant! Just be sure to hire one in the state of your parents’ residence to ensure they have the necessary credentials/knowledge to get it right. If your parents had an accountant, it’s probably a good idea to work with them.
Did your parents have a trust? Are you now the trustee? If so, you almost certainly have to pay taxes on the trust along with your own personal income taxes. (Obviously, you would use the money in the trust to pay the trust’s taxes—not your own personal money.) The trust may use your own social security number, or it may have its own tax number. Either way, an accountant is going to make your life a lot easier.
Do you have to pay taxes on an inheritance? Not federal taxes, unless it’s a pretty hefty inheritance. Like, millions of dollars. Review this Investopedia article for more details.
Do you have to pay taxes on life insurance payouts? Nope. (Unless it’s an annuity—you should be getting specific tax forms in the mail if that’s the case.) Usually you don’t have to pay taxes on any other Payable on Death (POD) accounts for which you were a beneficiary, either.
Friendly reminder: I’m not an accountant! If you have more complex questions, it’s probably best to consult one.
Self-care skeleton says...
You don’t have to talk to all these companies and organizations on the same day—you couldn’t if you tried. Spread it out. And for every Kafkaesque task you take care of, do something nice for yourself. Or do both at once—I went through stacks of my dad’s mail at the local brewery.