In many relationships, it’s common for one spouse to play money manager and the other to take a more passive role. This, however, can lead to major complications when the financially dominant partner dies first.
Financial advisors say there are several steps couples can take while both are alive and healthy to help reduce the chance of financial deadlock or worse, such as depleting the assets the couple saved.
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This preparation requires involving the non-financially dominant partner as much as possible—well ahead of when it becomes a necessity. Here are some ways to do that.
Prepare a go-bag
Step one is for the financially astute spouse to prepare a “go-bag” of sorts, just like in the spy movies, says Christopher Cordaro, chief investment officer of RegentAtlantic Capital LLC, a registered investment advisor in Morristown, N.J.
Financial advisors say this should include a comprehensive list of all financial contacts, advisors, attorneys, accountants, insurance professionals, and copies of beneficiary designations. The financially savvy spouse should also prepare a written list or spreadsheet of the couple’s assets and liabilities, including digital assets and passwords to these accounts. The spouse should also note the location of financial records including insurance policies, wills, and trusts.
It’s also critical that each partner has access to checking and cash independently of the other and that the spouses review together beneficiary designations and how assets and financial accounts are titled.
It can be especially important to ensure both spouses are on the deed to their home with the right of survivorship. “This makes it easier for the surviving spouse to show that he or she is the sole owner of the home and has the right to communicate with the mortgage company,” says Sarah Bolling Mancini, a lawyer with the National Consumer Law Center. “Things become much more complicated when a surviving spouse has to file probate in order to deal with the home,” she says.
Psychologically it can be hard for both spouses to go through these exercises, but it can be critical to the surviving spouse’s financial security. “It’s the only way to get both partners more involved,” Cordaro says.
Keep the end-user in mind
Any information the surviving spouse needs should be documented in a way that’s easily understandable for that spouse. This could mean preparing two different sets of instructions.
“Even if someone is very organized and has a well-developed description of their assets and estate plan, it may not be ‘user-friendly’ for a loved-one whose mind works very differently,” says Gerry Joyce, managing director and national head of trusts and estates at Fiduciary Trust Company International. “This is especially true if the couple has delayed an in-depth discussion about their affairs and planning and the non-financial spouse is now digesting it for the first time.”
Do a trial run
If possible, it’s a good idea for the less financially involved spouse to meet key advisors and perform some of the ongoing tasks such as bill paying, reconciling statements, and renewing insurance policies for several months—well before either spouse is experiencing cognitive decline, says Joan Crain, a senior director for BNY Mellon Wealth Management in Fort Lauderdale, Fla.
This process works best when the dominant partner helps train the other spouse for a month and then lets him or her take the lead for the next two or three months, with supervision. This exercise is important, she says, even if the plan is for a financial advisor to take over many of these duties once the savvy spouse isn’t able to. This gives the other spouse “enough insight into what these tasks entail that he or she can properly oversee a hired hand,” she says.
Pay attention to income and expenses
In addition, each spouse should also be sure to understand how one spouse’s death could affect household income. For example, if one spouse has a pension without survivor benefits and that spouse is the first to die, the surviving spouse may need to replace that income from another area, says Michelle Brownstein, vice president of private client services at Personal Capital Advisors Corp. in San Francisco.
Spouses should also determine how expenses could change if one spouse were to die. Brownstein offers the example of one spouse who drives while the other does not. The death of the driving spouse might mean no more car payments, car insurance or gas, but an increase in public transportation costs. Another example is housing. If one spouse is dependent on the other for care and the care-giving spouse is the first to die, the couple needs to determine what expenses would be incurred to replace the care-giving efforts, she says.
Craft policies on donations
Another important step is to discuss the couple’s charitable donation strategy, says Stacy Allred, managing director at the Merrill Center for Family Wealth Dynamics. They should create a written roadmap of the process for considering loans or gifts after one of them has died. This could include places they have given in the past, a mandatory 24- to 48-hour waiting period for every request received, consulting with the couple’s financial advisor to run ideas past him or her, and even a brief speech for turning down requests.
Don’t make sudden moves
Couples should also discuss the importance of not making major financial moves within the first year or so of a spouse’s death. Often, the surviving spouse isn’t in a solid enough emotional state to make big decisions and this is a time when predators have the potential to do the most harm.
Predatory lending, investment pyramid schemes and sales of inappropriate investment or insurance products are among the common forms of financial exploitation of the elderly, according to the National Adult Protective Services Association.
Dishonest debt collectors may also try to convince a surviving spouse that he or she is liable for the deceased’s debts. Generally, no one else is obligated to pay the debt of a person who has died, though there are some exceptions such as co-signed loans and jointly held credit-card accounts, according to the Consumer Financial Protection Bureau.
Widows or widowers—especially those who weren’t so heavily involved in finances—should be suspicious of investment pitches or advice from anyone, including financial advisors, that require large outlays of money. It a good idea to get a second opinion from another trusted financial advisor or attorney. “Any deal that’s a good deal can wait for you to get a second opinion,” says Bolling Mancini, the National Consumer Law Center attorney.
She cautions people to be especially wary of high-pressure tactics and to rely on basic common sense when in doubt. “Anything that seems to be too good to be true probably is too good to be true,” she says.
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