How Should I Prepare for the Potential Loss of a Spouse?

As originally published in Worth

The loss of a spouse, to either death or divorce, is one of the most traumatic experiences anyone can go through. Life will change irrevocably in many ways for the surviving spouse or separated partners. Adding to the burden, important decisions will need to be made at a time of personal distress.

Planning ahead for such an event may seem not only distasteful but unnecessary, especially if the legal elements of an estate plan already are in place. Some more basic but often neglected steps, however, can lessen the burden and financial issues that you and/or your spouse could face when this painful loss occurs. So-called “widow planning” – which applies equally to widowers as well as to contingency plans for divorce – should be an essential part of any couple’s financial preparedness.

Women are particularly vulnerable to complications from the loss of a spouse, since men still control the majority of couples’ investment decisions and financial record-keeping. One in four widows responding to a recent national survey had difficulty locating bank and investment accounts and obtaining access after their husbands died. These precautions, though, are valuable regardless of gender or affluence level. Even those of high net worth can experience a lack of liquidity as an unwelcome financial surprise.

1. Gather and organize information.

The better organized your information, the more prepared you will be. I recommend that spouses work together to make a list of the following information and then update it as changes occur, or at least review it annually:

  • Bank, investment and retirement accounts
  • Insurance policies
  • Beneficiary information on all accounts
  • Outstanding debt (mortgage, home equity lines of credit, etc.)
  • Social Security statements
  • Safety deposit box
  • Trust documents
  • Wills and powers of attorney
2. Make sure your spouse has access.

It is not enough to simply have a list of the information above. Spouses must also have the ability to access it. One of my clients suffered a severe injury and was incapacitated for months. Before his injury, I ensured that his wife had limited power of attorney on his checking account so she could pay all the bills he had handled. You may want to avoid titling assets in joint ownership, as this may not be consistent with your estate plan.

3. Meet with professional advisers.

The spouse who is less involved in household financial matters should meet with the family’s estate attorney, investment consultant, accountant and insurance professional at least every couple of years to maintain a working relationship and an understanding of the overall financial picture. To avoid having to meet with multiple investment advisers, we recommend consolidating investments and allowing one trusted independent adviser to oversee the entire portfolio. One idea that has worked well with many of my clients is to hold an annual family meeting attended by all of the professional advisers. This encourages collaboration.

4. Keep a substantial emergency fund.

It is important to maintain a liquidity reserve to cover short-term cash needs. I have seen many situations where clients have a large net worth but are very tight on cash flow, which can cause problems if a major life event such as the loss of a spouse occurs suddenly. Those who are not working and living off their investment portfolios should maintain a liquidity reserve of at least 12 months’ expenses to avoid having to liquidate investments at an inopportune time.

Aside from financial precautions, some may also wish to start preparing a life history, ethical will or video recording in order to leave a personal legacy for loved ones.

Losing a spouse can be both emotionally and mentally overwhelming. Even when financial security is not an issue, executing some basic steps now can go a long way toward limiting the risk of future pitfalls and paperwork complications at a time when additional challenges will be most unwelcome.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.