The Wealth Transfer Underway Now
Much has been written about the Great Wealth Transfer, with more than $60 Trillion expected to pass from one generation to another over the next twenty years.(1) But there is another significant wealth transfer already underway: the one involving the death of a spouse.
With all due respect to my male friends and colleagues, this phenomenon is tilted in one direction – men passing first and leaving their estates to their wives. This is not a surprise. Life expectancies for women are longer than for men, and women tend to marry older men. The numbers suggest that women generally outlive their spouses by more than 8 years, increasing the likelihood that it will be women who are left with an estate.(2,3)
This transfer of wealth can be different for many women than would be for men. Personally, I cringe at articles and talk shows suggesting that women are less financially sophisticated than men or that women are more risk-averse. But it is true that the surviving spouse often finds herself alone, facing a daunting array of financial matters and decisions to be made.
I have seen this myself, watching friends suffer the death of a spouse. In addition to the emotional turmoil that comes with such a loss, several friends have found themselves overwhelmed by the financial complexity that has passed into their hands. Sometimes it can be as simple as not having account logins or passwords, or not being able to find a safe deposit box key. Or it can be far more complex matters such as finding business-related partnership agreements or not even being aware of private or direct investments made by the spouse.
If you find yourself in this situation, or just want to be prepared, here are five tips to help navigate your way through.
1. Gather everything in one place.
Ideally, you have a document storage system, preferably in the cloud, that aggregates all your bank and investment accounts, private equity holdings, loans and mortgages, annuities, and life insurance. You should also have all personal and financial documents captured electronically, including wills and various powers of attorney, deeds, trust documents, marriage and death certificates, property and casualty insurance policies, and so forth.
2. Focus on Liquidity.
Everyone should have an emergency fund to cover unexpected expenses in the event of illness, loss of income, or other event. At a minimum, this should cover six months’ worth of expenses.
In addition, your investment portfolio should be structured to ensure several years of liquidity. A combination of cash, interest, and dividend income, pensions and annuities should fund your lifestyle for 2-5 years, so that you do not have to sell other assets at distressed prices or in ways that would trigger unnecessary taxes.
3. Have trusted advisors.
Everyone knows a good CPA is a must. But when it comes to investment advice, few people understand the difference between a fiduciary and a broker. A fiduciary is someone who acts in the best interests of their client, not on what they have to sell. A trusted investment advisor will not only help structure a portfolio that best meets your needs and risk profile, but will stand between you and everyone trying to sell you something.
4. Have a Plan.
A good financial plan will address your needs over your entire life horizon. After the death of a spouse it will make sense to revisit the plan, especially if that death was an untimely one. Working with your Advisor, the plan you construct will incorporate not only your lifetime needs but those of your family members as well.
5. Stay the Course!
When markets are frothy or going through periods of great volatility, it is easy to get nervous. Often, concern over negative market swings can lead you to sell at exactly the wrong time. This can result in unnecessary tax bills, and also leave you in a position to miss the next upswing.
It helps to maintain a long view of the market. The trend in the stock market over the past 100 years has been up.
The loss of a spouse may seem like the time to make changes, to free up cash, or just to “do something.” However, it’s usually best to make smaller, more measured changes, rather than overreact to a volatile market.
It all boils down to this: meeting practical needs and having a smart investment strategy. You can improve your chances of navigating traumatic times by planning ahead and addressing these things now rather than later. As always, our firm stands ready to assist so you do not have to go it alone.
2. Women in the US live an average of 5.9 years longer than men.Life Expectancy in the U.S. Dropped for the Second Year in a Row in 2021 (CDC)
3. The average marriage age difference was 2.4 years in 1975 (a typical Boomer wedding year) Historical Marital Status Tables (U.S. Census)