# Preparing for the death of a spouse.



## MangoTango (Feb 8, 2020)

My wife has terminal cancer. We are doing everything we can to make her comfortable. Fortunately she is still at home and we hope that doesn't change.

Please don't view me as petty - but we have changed most every 'joint' account over to an individual account in my name. Wherever possible (and it is surprising that US brokerage firms differ) - we have made her my sole beneficiary. 

So this afternoon I have a few questions :

- I have been told by the US brokerage firm which holds our 2 IRAs and our 2 Roth IRAs that upon her passing they will roll her accounts into mine. There should be no taxation. Everyone here ok with that ?

- Do you think there is any advantage if we were to convert more of her IRA monies into her Roth beforehand ?

- She is receiving social security. I am not and I was planning on waiting until I turned 70. When I look at my SS statement it states very clearly how much my surviving spouse would receive - but when I look at her statement there is no mention at all regarding survivorship benefits. I assumed I could claim that benefit until I turned 70. Am I mistaken ?

Thanks

Any other advice appreciated... 


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## 255 (Sep 8, 2018)

@MangoTango -- I am sorry for your situation. In answer to your questions:

a. "I have been told by the US brokerage firm which holds our 2 IRAs and our 2 Roth IRAs that upon her passing they will roll her accounts into mine. There should be no taxation. Everyone here ok with that?" On the death of a spouse, you have two options on how to title an IRA: (1) You can keep the account in your spouse's name, with you as the beneficiary or (2) roll it into your own name. The second choice seems to be what your U.S. brokerage sees as their preferred path -- but the choice is yours. My choice would be what they recommend.

b. " Do you think there is any advantage if we were to convert more of her IRA monies into her Roth beforehand?" Yes, there is a definite benefit. Especially, as you get older. My choice would be to convert 100% of you traditional IRAs into Roths. You may want to do a "Roth conversion ladder," depending on your tax situation. Many other members on this forum are doing that. My goal would to convert everything into Roths. There are two schools of thought as to have an end goal of one Roth account (to simplify,) or two for protection from your brokerage imploding (it depends a little on the health of your brokerages and the dollars involved, so as not to exceed SIPC coverage on the account.) Also, be aware, that Dec 31, 2021, may be the last date you can do a conversion, depending what the final results of the "reconciliation " bill being debated, in Congress (assuming it gets passed.)

c. "She is receiving social security. I am not and I was planning on waiting until I turned 70. When I look at my SS statement it states very clearly how much my surviving spouse would receive - but when I look at her statement there is no mention at all regarding survivorship benefits. I assumed I could claim that benefit until I turned 70. Am I mistaken?" You can claim Social Security Survivors Benefits as early as age 60 (but it will be reduced, if you are taking it prior to you full retirement age (FRA.) You can then submit an application, to the SSA, to change your benefit from your spouse's to your own work benefit anytime after age 62 (with reduced benefits,) up to age 70, for maximum benefits.

As an aside, please do not be in a hurry to transfer taxed brokerage portfolios or real estate until after her passing to take advantage of "stepped up basis," allowed in current law (this one is also "on the chopping block," in Congress.

Also, check all accounts: insurance policies, brockerage accounts, bank accounts, annities, pensions, etc., to ensure the beneficiaries are correct now and after your wife's passing. Believe me, you are not being "petty" to make arrangements, to the best of your ability. My wife is an insurance broker and she has had to deal with many situations where the failure to plan or take action has reeped devastation on the survivors!

I wish you and your wife well. 255


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## MangoTango (Feb 8, 2020)

255 said:


> @MangoTango -- I am sorry for your situation. In answer to your questions:
> 
> a. "I have been told by the US brokerage firm which holds our 2 IRAs and our 2 Roth IRAs that upon her passing they will roll her accounts into mine. There should be no taxation. Everyone here ok with that?" On the death of a spouse, you have two options on how to title an IRA: (1) You can keep the account in your spouse's name, with you as the beneficiary or (2) roll it into your own name. The second choice seems to be what your U.S. brokerage sees as their preferred path -- but the choice is yours. My choice would be what they recommend.
> 
> ...


Thank you for the repsonse.

I'm afraid I don't understand "As an aside, please do not be in a hurry to transfer taxed brokerage portfolios or real estate until after her passing to take advantage of "stepped up basis," allowed in current law (this one is also "on the chopping block," in Congress. "

We live in Mexico (dual-nationals). We have been too honest with all the banking/brokerages in telling them that our one and only address is in Mexico. So - the banks don't seem to care in the least. BUT the brokerages have us labelled as 'International' clients. Not only do they limit my investment options BUT - and this is something that shocked me - had I left our accounts as Joint owners w/ rights of survivorship - those accounts would have been LOCKED by the IRS !!


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## 255 (Sep 8, 2018)

@MangoTango -- Current law allows for "stepped-up basis." A couple of examples for explanation:

a. Say you have a "taxed" (regular) stock portfolio that is full of stocks that have a lot of "unrealized" capital gains. For every stock, in the portfolio, you will be allowed to increase the basis, to the current market value (closing price, on day of death.) So, if your wife owns XYZ stock with a basis of $20.00 (purchase price, incl. commissions,) and the stock is currently trading at $50.00 -- you would not owe capital gains on the $30.00 unrealized capital gain, if you decided to sell it immediately, after death. If you continued to hold the stock and eventually sold it at $60.00, you would only owe capital gains tax on the $10.00 increase, since you inherited it vice the $40.00 gain, from when your wife bought it.

b. Say your wife bought a farm in Wyoming for $250K back in 1990 and now the farm is worth $1.2 million -- the $950K capital gain would be tax exempt, if you sold the property immediately. If you held the property for another five years and the market dropped -- you decide to sell the property for $800K, you now have a $400K capital loss (even though the property is worth $550K more than what your wife paid for it (your basis increased from your wife's $250K to your $1.2 million!)

In either of these scenarios -- you would maintain the original basis if the property is transfered before death. This catches a lot of people unaware, when titling property to their kids prior to death, eliminating the opportunity to take the stepped-up basis!

Congress is currently debating eliminating the ability to take stepped-up basis, to help pay for a proposed increased "social safety net." The idea is that a lot of the wealthy make "outsized" capital gains, passed through generations, tax free by utilizing this technique. On the other hand, farms and small business alike utilize this provision to keep operations going and the elimination of stepped-up basis, combined with a lowered estate tax could doom these farms/businesses.

There are also proposals, out there, to tax unrealized capital gains, annually. Nobody knows what the final reconciliation bill will look like.

I do think you are mistaken with your JTWROS accounts -- these types of accounts (along with "transfer on death" accounts) bypass probate and are not part of the decedent's estate (in the U.S.). I have dealt with nearly a dozen of these accounts, over the years, and I've never seen one frozen by the IRS. Unlike portrayed in the movies, the IRS only has grounds to "freeze" your account, if you owe them money and have failed to make restitution or negotiate to settle their claim. This is a "last resort" tactic. Even then, you have three weeks to appeal. In my experience, providing a certified death certificate is the ticket to removing the decedent from these (JTWROS) accounts. Nothing wrong with transfering them now through -- will save work and aggravation later (sometimes it takes a while to get certified copies of death certificates, start with about a dozen copies.) Cheers, 255


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## MangoTango (Feb 8, 2020)

255 said:


> @MangoTango -- Current law allows for "stepped-up basis." A couple of examples for explanation:
> 
> a. Say you have a "taxed" (regular) stock portfolio that is full of stocks that have a lot of "unrealized" capital gains. For every stock, in the portfolio, you will be allowed to increase the basis, to the current market value (closing price, on day of death.) So, if your wife owns XYZ stock with a basis of $20.00 (purchase price, incl. commissions,) and the stock is currently trading at $50.00 -- you would not owe capital gains on the $30.00 unrealized capital gain, if you decided to sell it immediately, after death. If you continued to hold the stock and eventually sold it at $60.00, you would only owe capital gains tax on the $10.00 increase, since you inherited it vice the $40.00 gain, from when your wife bought it.
> 
> ...


Depends on who you ask, Remember - I am viewed as an international client. Schwab (for instance) will not let me set up a TOD. Fidelity on the other hand even said - no problem. They were even willing to let me set up a foreign beneficiary. 

Both firms told me the same thing regarding the JTWROS designation. Basically, even though we were both born in the US, lived there for 60+ years, still pay our US taxes even though we haven't been there in a decade (and likely will never return) - we are viewed as if we were illegally crossing the Rio Grande. 

Both firms said - convert your account to an individual account....


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