Navigating Loss and Finances: Why Engaging a Wealth Advisor After Losing a Spouse Matters

Losing a spouse is a devastating experience that disrupts life on multiple levels. Apart from the emotional toll, there is also the practical reality of managing finances that used to be a shared responsibility. While grieving, it can be overwhelming to make critical financial decisions.

Approximately 10% of our clients have lost a spouse due to death and another 7% have lost a spouse due to divorce. We have extensive experience with these life transitions and are prepared to help alleviate your burden and help you through this challenging period.

It is vital to recognize how emotions impact financial decisions.

Humans like to believe they are rational, efficient, and unbiased in all aspects of our lives, including financial decision-making.

Yet, there’s compelling evidence that investing decisions are often made in a way that’s “less than fully rational” and reflects various biases like recency bias, overconfidence, and anchoring.

The brain has specialized areas like the amygdala, which processes emotional reactions, and the prefrontal cortex, which handles rational thinking. These areas often interact and influence each other when a decision needs to be made. Sometimes, the emotional response is so strong that it can override rational thinking, leading to impulsive decisions.

You have a perfect storm for making poor investment decisions when you add emotions.

Losing a spouse requires dealing with complex financial issues at a time when you are least capable of confronting them. These financial challenges range from immediate concerns like funeral expenses to long-term matters like retirement planning.

Here are some of the financial challenges you may face and the steps you can take to navigate them.

• Funeral Expenses
  Funerals can be costly, ranging from $7,000 to $ 8,000 in the United States. Pre-planning can reduce costs, but it is often an overlooked detail. Paying for a funeral usually becomes one of the first financial hurdles after the death of a spouse.

• Uncovering All Assets and Liabilities
  One of the most immediate tasks involves taking stock of all financial assets and liabilities. This includes bank accounts, retirement funds, investments, loans, and credit card debts. The size of this task can vary from overwhelming (if the deceased's affairs were disorganized) to modest.

• Probate and Legal Fees
  Probate is the legal process that takes place after someone dies. The process involves validating the deceased's will and distributing assets to the beneficiaries named in the will or to heirs if there is no will. During probate, debts, and taxes owed by the deceased are paid off, and any remaining assets are distributed according to the will or state law. The probate process can be lengthy and complex; legal fees and court costs can vary greatly.

• Income Gap
  The loss of a spouse can significantly impact income, especially for widows. It often means a reduction in income from a job or retirement benefits, which can require a budget revision.
  
  This can be particularly challenging for widows of previous generations, as they tend to have lower lifetime earnings and may have been financially dependent on their spouse. In addition to the loss of income, widows may also face increased healthcare and long-term care expenses, which can further strain their finances.

• Insurance Payouts
  Life insurance and accidental death policies can provide some financial relief, but it is essential to know the details of these policies so you can make claims and receive benefits.

• Tax Implications
  There may be tax implications, such as from the change in filing status, capital gains if any property will be sold, or estate taxes due. Final income tax returns may need to be filed for the deceased spouse.

• Revising Estate Planning Documents
  Losing a spouse often requires revisiting wills, trusts, and estate plans to ensure they align with your new life circumstances. Selecting a new personal representative and powers of attorney can be tough.

• Retirement Planning
  Your retirement picture is often drastically altered with the death of a spouse. You might need to downsize, delay retirement, or make other significant life changes.

• Investment Strategy
  The death of a spouse can meaningfully impact your investment strategy.
  
  You may receive assets that are not aligned with your new risk tolerance or financial goals. It is also possible that you may not understand the different types of investments you are now holding. More sophisticated investments, like partnerships or private investments, may be more difficult to get out of than others. Last but not least, the portfolio could be insufficiently diversified, exposing you to a higher level of risk than you can tolerate.
  
  Working with a wealth advisor is important to ensure that your investment portfolio is aligned with your financial goals, risk tolerance, and life circumstances.

• Social Security and Pension Benefits
  Understanding how the loss impacts Social Security, pension benefits, and other income sources is crucial. Some benefits may end, while others may require reapplication.

Final Thoughts

Taking control of financial matters after such a profound loss can feel overwhelming. Consulting professionals, including wealth advisors, tax consultants, and legal advisors, can provide valuable assistance. It may also be helpful to bring in a trusted family member or friend to help manage the burden of these tasks or be a second set of eyes and ears during important meetings.

Recognizing there will be days when you feel like you cannot move and days when you feel like you can take another step forward is okay. We have the empathy and patience to understand this and respect the space you may need.  

While nothing can replace your loss, proper planning and advice from a team working in your best interests can help you navigate the financial complexities, giving you a comforting, helpful hand during an already tough time.

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