While the death of the person to whom you’ve been married is enough of an emotional challenge in itself, many wealthy widows in particular discover that they must confront underdeveloped financial plans that leave them feeling insecure. As noted when we last explored the issue of divorce in “Add a Break-Up Quarterback” (December 2007 column), widowhood also requires a different approach to navigate a path to financial stability that will support emotional recovery. The lack of advanced planning by many high-net-worth couples contributes to this tumultuous state in which widows find themselves. While society is changing, it’s still the case among many HNW couples that the man tends to be the one who makes a bigger contribution to the couple’s income, and is more heavily involved in overall financial planning.
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