Financial Advisors for Surviving Spouses: How They Can Help After a Loss

The thought of losing your spouse can be overwhelming. Grief is tough, especially when a loss is unexpected or sudden. Widows or widowers may not even know where to start to pick up the pieces and start a life without their husband or wife.

When it comes to finances, financial advisors serving a surviving spouse can provide significant peace of mind. But the advisor you choose should be familiar with estate plans and the probate process.

If you find yourself surviving the loss of your spouse, the right financial advisors can provide personal financial guidance and the peace of mind that comes from sound financial planning. This can eliminate much financial stress during the time of recovering from such a loss.

The challenges that surviving spouses (actuaries tell us that is generally women) face when moving forward with their lives can feel insurmountable without assistance. Especially when it comes to finances – for many couples, one spouse manages the couple’s money. If that person is not the survivor, a surviving spouse may be learning the details of their financial plan and investments for the very first time.

Personal financial advisors can provide a wide range of services to surviving spouses, including guiding and facilitating the estate probate process, updating the client’s financial and investment plan to reflect the new circumstances and helping the client plan for a secure financial future.

 

Ready to talk with a financial advisor? Contact Linscomb & Williams to see how we can help.

 

Understanding the Probate Process for Surviving Spouses

The probate process involves the executor of an estate (usually the surviving spouse) preparing an inventory of the deceased spouse’s assets, paying creditors and final expenses, and then distributing the remaining assets (except those excluded from probate) to heirs. The process can take several months and involves many steps, including notifying heirs and creditors of the deceased spouse’s death and managing the process of transferring property to legal heirs. A financial advisor can help widows fulfill the required steps of the probate process.

It is important to note that certain assets are excluded from probate. Excluded assets generally include those that pass directly to heirs by means of a beneficiary form designation, including retirement accounts and life insurance proceeds. Checking and savings accounts are also exempt from probate if they have been specified as POD (Payable On Death) to a beneficiary. Finally, assets owned by trusts, even if they were established by the deceased spouse, generally avoid probate.

Understanding Asset Ownership and Inheritance Laws

Assets can be owned, or “titled,” in many ways, but most individuals without complex investment portfolios or estate plans will encounter only a handful of different types of property ownership. Ownership is critical to understand after a spouse passes away as it helps determine who will inherit an asset.

Every state has its own rules. For example, some follow a “community property” law, while others have a “common law” when it comes to property inheritance. The major distinction between these two ownership laws is in how joint ownership (or lack thereof) of assets is treated within couples.

In community property states, like Texas, assets, income and debt acquired during a marriage are assumed to be owned equally by each partner, unless the spouses previously agreed to a different form of ownership. Upon a spouse’s death, the deceased spouse has the legal right to distribute his or her half of community property as he or she wishes (although most spouses elect to leave their assets to their surviving spouse). There are a few exceptions to the presumption of community property, most notably a spouse receiving an inheritance in his or her name only. Inherited assets are not presumed to be community property.

Conversely, in common law states, a spouse can purchase property with his or her own assets or income, meaning no portion of the property would belong to a spouse, and the full amount could pass to an heir other than the surviving spouse. However, most common law states have protections against complete disinheritance of surviving spouses by offering survivors the right to claim between one-third to one-half of the deceased spouse’s estate. Debt can also be incurred in one spouse’s name alone, meaning that the surviving spouse will not inherit the debt (and it would be subtracted directly from the deceased spouse’s assets) when settling an estate.

Updating a Surviving Spouse’s Financial Plan

After the passing of a spouse, many aspects of the survivor’s financial plan should be reviewed and possibly recalibrated. A financial planner can help assess where changes are necessary to provide the greatest benefit to the surviving spouse.

Income tax planning 

In addition to assisting with filing the deceased’s spouse final federal (and state, if necessary) income tax return, a financial advisor can suggest changes in the survivor’s tax strategy based on a new financial plan, including investment, gifting and charitable donation strategies, and their status as a single tax filer.

Investments and other assets

After a spouse passes away, a financial advisor can help the survivor determine if any assets were left to anyone beside the surviving spouse. If so, a financial advisor can adjust the client’s financial plan to reflect the fact that the surviving spouse no longer has access to these assets. For example, although pension plans and 401(k) accounts usually require a surviving spouse be the sole beneficiary, the beneficiary of an IRA can be someone other than the surviving spouse.

If a surviving spouse has received life insurance proceeds, a financial advisor can assist with investing at least a portion of the proceeds into the surviving spouse’s investment portfolio. If a surviving spouse owns a life insurance policy on their own life, the advisor can also help the client determine whether to maintain the policy to cover his or her own funeral and estate expenses or whether cash values and premium commitments are better utilized elsewhere.

Income needs and lifestyle planning

A widow or widower’s income, whether from employment, retirement accounts or pension plans, will likely change after the loss of his or her spouse, and financial advisors can incorporate the new expected income levels into a financial plan.

For example, if a deceased spouse qualified for a company or government pension, a financial advisor should be able to determine the details of whether the pension plan will continue to support the surviving spouse, and if so, whether the payment amount will be reduced. For Social Security income, if the surviving spouse previously received Social Security income based on the deceased spouse’s work history, he or she will be able to continue to receive benefits as a survivor.

Financial advisors to widows or widowers can also provide an updated estimate of a safe level of spending as well as the required portfolio changes that might best support those spending needs.

Discussing Estate Planning with your Spouse

A well-designed estate plan is one of the greatest gifts a spouse can leave behind for his or her partner and other survivors. An effective will can eliminate the stress that survivors experience if there is ambiguity in the deceased spouse’s wishes. It can also reduce unnecessary legal and administrative costs as the estate’s executor manages the closure of the estate and the final distribution of assets.

Although it may be an uncomfortable conversation, spouses should communicate their wishes for their estate clearly to each other, as well as update their estate plan upon life changes (such as changing their inheritance wishes or the terms of a trust fund). It is a good practice to discuss these wishes with a financial advisor together, so if the time comes that you do have to live on your own, your advisor is already familiar with your spouse’s wishes.

These discussions can also encompass how each spouse would prefer to pass certain assets upon the surviving spouse’s death or to make gifts during the surviving spouse’s lifetime. While these may not be legally binding decisions, these conversations can bring peace of mind to the survivor that their financial decisions will align with what the deceased spouse would have wanted.

Working with a financial advisor and an estate attorney can also offer couples the option to create one or more trusts upon their death, meaning that spouses can designate certain assets to pass to a trust instead of outright to individuals. The couple can establish restrictions, such as a minimum age the beneficiary must be to receive the funds or a requirement to meet certain other conditions.

By freely discussing what they desire to leave behind, couples can help ensure that their priorities align, that they know each other’s wishes and that they will be able to offer clear guidance and communication of their preferences to their survivors and heirs.

Long-Term Financial Planning for Surviving Spouses

Facing the administrative and financial responsibilities and tasks associated with managing a deceased spouse’s estate and moving forward financially can be difficult in the face of personal tragedy. Personal financial advisors can provide immediate assistance with the many steps required after the deceased’s passing. Offering ongoing, lifelong guidance may also be beneficial for a widow to ensure that a new financial plan matches his or her lifestyle needs, priorities and the legacy he or she ultimately wants to leave to their own heirs.

 

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J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams is Linscomb & Williams' Managing Director, Chief Executive Officer and Chairman.

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