With women who are recently widowed, the biggest obstacle to finding the right solutions is their state of mind. They are not only trying to settle the estate, but they're trying to get their own financial independence up and running--and confronting survivorship issues at the same time. They're facing a lot of paperwork for many different kinds of transactions in a relatively short amount of time.
"The technical solutions---like figuring out the estate planning, the taxes, the investments, the cash flow--that's usually the easier part," notes Jan Geiger, a planner with LongView Wealth Management in Atlanta. "It's the psychological part that's usually hard. My experience after 20 years has been that about 20% of the decision making is logical and 80% is emotional."
Especially with widows who are older and coming from a marriage with many assets, advisors have noted how many weren't involved with financial management to any degree. One of the key issues is providing guidance "before somebody at the bank has sold them an annuity," observes Geiger. "You just need to get to them early enough so that you can keep them from doing a lot of foolish things."
The Widow as Prey
Late last year, a woman in Virginia who had only been widowed a few months got a call from her accountant who had started working on her tax returns.
"There's just something funny about your Schedule D," said the accountant. "There are lots and lots and lots of transactions here." It turned out that when her husband died, the widow told his broker at a major wirehouse to just go ahead and do what he'd always done for her husband because she really didn't understand investments.
The first thing this broker did was flip her to the highest commission schedule the wirehouse allowed. Then he started churning her account. At the age of 70, she wound up owning a significant amount of Nevada gaming stocks, which the broker's firm just happened to bring to market on its investment banking side. Of course, the portfolio was totally unsuitable for her situation.
The accountant sent her to Helen Modly, who is VP and director of investment services for Focus Wealth Management, a fee-only investment advisory firm in Middleburg, Virginia. Modly did some cash-flow planning, and figured out how to make best use of the husband's retirement plans and restructured her portfolio.
"Widows are in a position of trauma," observes Modly. "They tend to just go along with whomever is being nice to them."
Paralyzed by Paperwork
Not surprisingly, widows as a group exhibit the range of dysfunction from super hoarder to super frugal, independent of the actual assets at their disposal. For some, even having a $10 or $15 million net worth doesn't get them beyond the fear that they might end up homeless living on the street, notes Geiger. They're also scared someone will take advantage of them and walk off with their money.
At the other end of the spectrum, she's met widows who've blown through $2 million in two years--a pace that will leave them with very little after five or six years.
Geiger finds many new widows are unable to focus on the decisions facing them. She'll tell such overwhelmed clients that she'll come to their homes and sit down with them and go through all the paperwork just to help them get organized--particularly if they've never handled the family finances. She tells them just to sit nearby, keep her company, and answer some questions.
"And if they let me help them, I don't even charge them for the time," says Geiger. "I'm happy to do it because I know what shoes they're in and they're probably going to be my client for 20 years. Over the next 20 years, I'll earn the money back that I deserve for taking this extra time, but I want to help them get past this hump."
Challenge of Illiquidity
Although their balance sheet may show significant assets, the lack of liquidity can be the first financial surprise. For example, if a couple owned parts of a few businesses and maybe some investment real estate such as a shopping center or some undeveloped land, those holdings don't guarantee adequate cash flow to maintain the couple's previous lifestyle. In a typical marriage where the husband's substantial annual income maintained the family's three homes and multiple luxury cars, the sudden lack of that income radically changes the cash-flow picture for the surviving spouse and children.
"Trying to come up with a way of structuring cash flow can be tough because a lot of widows don't want to sell anything that they owned jointly that reminds them of their husbands," notes Modly. "Since I practice in farm country, we've seen a lot of very illiquid estates."
During strong real estate markets, an owner could sell a land parcel to pay taxes or improve cash flow. In many parts of the country today, however, selling property or a home is a challenge.
Even with affluent families, advisors aren't seeing many cases where the amounts of life insurance are inadequate to replace the lost income after the death of the main breadwinner, as a recent case of Modly's indicates. The husband had owned a profitable, closely held business, but he had been careless about maintaining stock certificates. As it turned out, the stock was in his name and some of it had been pledged. Modly's firm had to spend considerable time just discovering who owned what.
The widow also became the owner of a substantial amount of property, including a 10,000-square-foot home the couple had just finished building. She's reluctant to sell the house, yet she has insufficient proceeds from life insurance and other sources of cash to maintain her previous lifestyle. On her own, she earns less than $50,000 annually.
"It's amazing that you can have that much net worth and still be broke--just because it's not liquid," Modly says.