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How widows can avoid a cash crunch after the death of a spouse by planning ahead

Older woman sitting outside | Tom Merton/Getty Images

When a spouse dies, the surviving spouse is likely to be a widow in a cash crunch. Twice as many women face the death of a spouse -- widows comprise nearly 8 percent of the population, while 3.5 percent are widowers, according to the U.S. Census Bureau.

"Lots of new widows -- even those with high net worth -- ask their lawyer, 'How am I going to live and pay the bills?'" says Theodore Kurlowicz, professor of estate planning and taxation at The American College of Financial Services. "Even if they are among the highest earners, they still have that problem, because it is all about liquidity."

It's easy to understand how this can happen when the death is unexpected. But even when the death comes after a long illness, the survivor may be surprised and unprepared to deal with the complexity and slow process of unraveling an estate.

Cash flow problems

For weeks and even months, the survivor is likely to have an immediate demand for money, but limited access to cash and credit cards, as the process of sorting out the estate lurches along.

The death of a spouse puts lots of pressure on the cash assets. Paying for a funeral or even simple cremation costs thousands. And there are other costs, as well.

"Close family members may need help with money to travel to attend the funeral. There are final medical bills, insurance deductibles. And even if it is a simple estate, you'll probably have to pay a lawyer," says certified financial planner Hans E. Scheil, president of Cardinal Retirement Planning.

Simultaneously, Social Security for the deceased person will end. There are precise rules for when a deceased person's heirs can keep a final check and when they can't. Banks are charged with understanding the rules and either returning the check or allowing Social Security to pull the overpayment out. In either case, eventually the money will disappear and the widow will be out of cash that she has been accustomed to receiving.

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Power of attorney expires

Before the death, the surviving spouse may have had a durable power of attorney, which allowed her access to her spouse's accounts to pay bills and manage other financial issues. But power of attorney ends when the person authorizing it dies.

While the bank might not know immediately about the death, it will find out quickly because the funeral director is required to alert Social Security. In the meantime, forging the deceased person's name on a check or otherwise lying about the death is fraud. While the American Bar Association says durable power of attorney abuse is common and rarely prosecuted, Kurlowicz points out that in families where there is already disagreement over the estate, breaking these rules can make the situation messier.

Getting the death certificate

When someone dies, the death is registered with the local or state vital records office. Usually, the funeral home or the cremation company handles this. The process can take a week to 10 days, sometimes longer.

"In my experience, the death certificate is the biggest source of the delay. You have to have it before you can file any other paperwork," says Scott Sadar, executive vice president at Somerset Wealth Strategies.

It's generally advisable for the widow to order at least 10 copies of the death certificate through the funeral home to avoid having to pay a fee later to the county or state.

Word travels fast

The funeral director notifies Social Security of the death immediately, and Social Security right away sends out a Death Notification Entry, or DNE, through the Federal Reserve System. Banks, credit card companies and other financial institutions put a notice on the account and immediately lock down or close accounts on which there is no other owner.

How a bank account is titled can make a big difference in whether the surviving spouse can access money. While being an authorized signer on an account will let someone make deposits, write checks and charge on a credit card while an ailing spouse is alive, upon death, the person who is just a signer -- and not an owner -- will lose access as soon as the bank gets the DNE notice.

To avoid that problem, set up at least one account jointly with right of survivorship. That way, after one spouse dies, the survivor becomes the sole owner of all the funds.

"If you trust your mate, putting your entire emergency fund in a joint account is the simplest way. A joint account with right of survivorship gives the surviving spouse immediate access," says Kurlowicz.

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Life insurance is another solution

"These situations cry out for life insurance," says Scheil.

Life insurance for people older than 50 can be expensive and some people are turned down because of their health. If you belong to a professional association that offers it as a benefit, or if you can buy it at work, it could be worth the money.

"Older people are told they don't need life insurance," Scheil says. "They may not need a lot, but it can come in handy when a survivor has bills to pay."

If the death is expected, Kurlowicz suggests getting the paperwork in advance from the life insurance company. That way you can send in the claim as soon as you have the death certificate and expect to have the money within two weeks.

Retirement money can be elusive

Being the beneficiary on someone's IRA, 401(k) or other account makes the transfer of assets easier -- although not necessarily fast. It may be months before monies are transferred to the beneficiary's account.

"A lot of people create living trusts to avoid probate. But if you are worried about not having money for a month or two, a living trust isn't the answer. It doesn't give you instant access," Kurlowicz says.

But compared with probate, that's a high-speed process. Probate, the legal process of administering an estate, can be painfully slow.

"The problem comes when you have probate assets," Kurlowicz says. "Someone with millions in assets and more than one marriage -- it might take two years to complete -- and that's when everybody is mostly on the same page."

But if they're not, the process can drag on even longer.

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