Does a person ever face more difficult decisions while less able to think clearly than when his or her spouse has just died?
Surviving spouses face a host of unremitting financial issues: locating policies and important papers, retitling assets, changing beneficiaries, and reallocating retirement funds. If the deceased was the spouse responsible for financial decision-making, the survivor’s challenge becomes even more daunting. Survivors are often unaware of what policies and pre- or post-retirement funds exist, much less how to secure them.
Tracking down the needed data can be overwhelming, particularly when the survivor is confronted with the emotional trauma of dealing with a loved one’s death. Even when the death is expected, few survivors are prepared for the scope of the paperwork, procedures, and decision-making that follows.
While survivors obviously need professional assistance, there is little incentive for financial advisors to tackle those labor-intensive tasks. Of course, there’s no shortage of advisors willing to pick the low-hanging fruit: the allocation of portfolio assets. Rolling over or repositioning IRAs and other retirement accounts into investment products that can generate new commissions or fees can be a profitable activity. But beyond the lucrative investment work, who will volunteer to attend to the avalanche of time-consuming, grunt-work issues? Who will coordinate the efforts of the survivor’s CPA, attorney, and other advisors to ensure they are working harmoniously and in the survivor’s best interests? Who will ensure the financial landmines on the survivor’s economic landscape are defused before they detonate?
While financial consultants may have the best credentials for dealing with the details, the temptation to cash in on portfolio reallocation and pay lip service to everything else is always present. Though the detail work may be tedious and unprofitable, proper disposition can have enormous tax and lifestyle implications for the survivor.
“John Made All the Financial Decisions”
In cases where the deceased–most often the husband–was solely responsible for financial decision-making, the survivor–most often the wife–faces a particularly difficult challenge. Not only might she have trouble finding the necessary paperwork, she might also be unaware of what she should be looking for.
To the uninitiated, sifting through the seemingly endless pile of paperwork can feel like an impossible task. Often, official-looking papers are inconsequential and an easily discarded scrap can have invaluable information. Imagine a distressed survivor, rummaging through a shoebox or file cabinet. Where are the insurance policies? Where is the paperwork from John’s ex-employers with all the information about his corporate benefits, company stock options, and 401(k) holdings? Didn’t he once say his parents had taken out an insurance policy on him when he was a child? Did he ever cash that in? What about the pension plan he had with that company that was later acquired by a foreign firm?
Even when the necessary paperwork is located, a contact at each organization must be identified, the needed information determined, the appropriate forms secured and filled out, then followed up, followed up, and followed up.
Addressing the investments may be a relatively simple or complex matter. Typically, they are adjusted in response to the needs of the survivor or to tax issues. For example, investments in the name of a deceased may receive advantageous tax treatment called stepped-up cost basis, eliminating capital gains. It’s usually wise to record the value of these investments immediately so they can be tracked forward as the basis for future adjustments. Capturing accurate data after the occurrence of stock splits, spinoffs, and other events affecting the tax basis can be problematic. Then, too, investments that were appropriate for the married couple may no longer make sense for the survivor, who may now have an understandably different viewpoint regarding financial security and investment risk.
This is where rule-of-thumb formulas regarding income requirements and asset allocation must be tempered by the human factor. Survivors are likely to be under excruciating stress, even in cases when death was anticipated. It may be best to defer as many decisions as possible, particularly those of magnitude, until the survivor is able to make calm, considered choices. That may be several months or even further down the road.
The survivor’s time and energy during these critical first few months are likely better spent getting through the attendant emotional and psychological trauma. This is where a compassionate financial advisor can be of great service, working behind the scenes, dealing with the myriad paperwork, collecting and sorting data, changing titles, addressing insurance issues, determining what funds are available, and so on. Many survivors still harbor fears that some government agency will impound their money unless they quickly empty their bank accounts or safety deposit box, or that they will lose their home if they miss a payment. They need to be reassured and given reliable information so they are not unnecessarily harried.