The death of a spouse can lead to complex circumstances for advisors if a wealthy survivor never had much to do with the couple’s taxes and financial planning.
“Losing a spouse unexpectedly is every significant other’s worst nightmare. One minute you’re happily married, the next you’re emotionally and financially independent,” said Spuds Powell, senior wealth advisor for Kayne Anderson Rudnick in Los Angeles.
“The last things on a surviving spouse’s mind are the financial and tax issues,” added Michelle Espey, tax partner at Farrell Fritz P.C. in Uniondale, N.Y. “Many married couples assign financial and tax responsibilities to only one spouse.”
Surviving spouses sometimes fall into the trap of believing their finances are already in order and that their own finances will remain the same—or improve due to a windfall. “Many are immediately surprised by the increase in income tax that often follows when their filing status changes and their income increases due to additional income received from inherited assets,” Espey said. “Others are shocked to uncover historical compliance issues.”
Potential changes to federal estate tax—cutting the exemption amount, eliminating the step-up in basis, curtailing certain wealth-transfer strategies—mean that the sooner survivors are engaged in estate planning, the better. “We recommend that the widow or widower understand that there are deadlines for making some decisions,” said Steve Aucamp, managing director at Tiedemann Advisors in Washington, D.C.
“Understand all your resources for cash and income,” added Robert Karon, a CPA and managing director at CBIZ MHM in Minneapolis. “Understand where your money goes, how much you currently spend and how much you may spend. Understand what kind of return you need to make on your liquid assets.”
Now’s the time for the advisor to step up. Sometimes that's easier said than done with a survivor.
“In some cases, the spouse making the decisions was a financial do-it-yourselfer, so there’s no advisor for the surviving spouse to turn to. In other cases, where the financial spouse had a trusted advisor, the surviving spouse may not have been party to that relationship,” said Tara Thompson Popernik, director of research for the Wealth Strategies Group at Bernstein Private Wealth Management of AllianceBernstein.
“The survivor also often doesn’t understand the cost of professional services and can have sticker shock when it comes to fees,” said Karen L. Goldberg, partner-in-charge of EisnerAmper’s Trusts and Estates Group in New York. “The surviving spouse in some cases typically doesn’t have an understanding of the magnitude of [the deceased’s] wealth and the importance of astute tax and financial advisors.”
Powell said that his widowed clientele—a quarter of his entire client base—are “apprehensive” about the team of financial professionals they’re working with. He tries to step in as his client’s confidant, advocating for their interests and driving discussions with their remaining team of financial professionals and constructs a six-month plan to help clients with funeral arrangements and other financial needs.