What to know before he goes: Preparing for widowhood

No one likes to think about the possibility of his or her spouse passing away. But whether we plan for it or not, statistics tell us most women will end up single at the end of their lives. In fact, women are four times more likely than men to be widowed, and widows typically survive their husbands by 14 years. Taking the time to get your affairs in order while both spouses are alive and well will go a long way toward creating security and confidence for the entire family.

First and foremost, wives need to be fully informed about the family’s financial situation. Finding this uninteresting or unpleasant is not an excuse! Our bi-annual trips to the dentist or primary care physician are not particularly pleasant, but they are preventive measures that help us be fully informed about our health and give us the opportunity to address any emergent problems in a timely fashion. The same is true of financial awareness and planning.

I have seen new widows come to my office completely overwhelmed and fearful because they were not involved in their family’s finances, and as a result are not familiar with their joint assets, liabilities and cash flows. This can be avoided by communicating early and often with your spouse about your finances. We highly recommend both spouses complete a checklist to ensure both parties know about all bank accounts, pensions, loans, location of the safe deposit box, contacts for key advisors and other relevant information. And don’t forget to write down login and passwords for all online accounts – this can save many hours of frustration down the road.

There are several key documents that need to be in place to ensure the unexpected loss of a spouse doesn’t create unintended and unwanted outcomes. These documents include a will, which provides tax planning and creditor protection for assets that pass to the survivor. If there are children of a previous marriage, this also ensures that the decedent’s wishes are carried out, increasing the potential for a positive relationship with stepchildren in future years.

For business owners, it is critical to have a succession plan in place so that this asset, which may provide for future living expenses, continues to be viable. This may include key man insurance so that the business can buy out the deceased’s interest, and a shareholder’s agreement and/or buy/sell agreement that outlines the terms of the buy-out. Establishing a home equity line of credit prior to a death to utilize for cash reserves if the transition of the business takes an extended time is another possible way to resolve this potential problem.

New widows may have limited access to funds until probate is open. Having an existing checking account in your own name or one titled as Joint Tenants with Right of Survivorship (JTWROS) can greatly limit this financial stress. The balance should be in line with expected living expenses for one to two months.

Many women worry, and rightly so, about replacing their husband’s income were he to pass away prior to retirement. For many, making sure their spouse has sufficient life insurance can eliminate this risk and concern. For example, if a couple spends a husband’s $100,000 after-tax salary every year as part of their lifestyle, and he is 55 years old with an expected retirement age of 65, they might consider obtaining a $1 million term policy on his life ($100,000/year x 10 years) that they hold until his retirement. If there are minor children, this amount could be increased as necessary to account for the future expense college.

Married couples should also take the time to ensure that the beneficiary designations for company retirement plans, annuities, deferred compensation and life insurance name the surviving spouse as the primary beneficiary, and not the estate. Particularly with a 401(k) or Individual Retirement Account (IRA), this ensures the surviving spouse will have the opportunity to complete a spousal rollover of those accounts into an IRA of their own, which can be used most tax-effectively for their retirement.

Adjusting to widowhood will be a difficult transition even under the best of circumstances. But with some advanced planning and open communication, you can make sure the financial processes are not adding to the burden of a challenging time.

[Sue Peterson, CFA, is a managing director, client manager for Cornerstone Advisors in Bellevue and a member of the Estate Planning Council of Seattle. Reach her at 425-455-8183 or suep@buildbeyond.com.]