Most of us have had friends or family members who have endured the loss of a loved one. The pain we have seen them experience underscores the need to devise a financial and legal plan to support a surviving spouse or partner. Illness and mortality are sensitive topics, and people often avoid talking about them and/or postpone addressing them in their financial plan. It may also be the case that approaching the conversation with your spouse triggers an emotional or defensive response, especially if that person feels responsible for managing the finances.
By including your spouse in a meeting with your financial professional, you can neutralize the tone of the conversation while increasing your confidence and sense of security as a couple. The financial professional can help craft a support plan for a surviving spouse or partner and help lessen the difficulty of the surviving spouse making complex financial and legal decisions while grieving.
While you can never fully prepare for the loss of someone dear to you, taking the following steps may help you recognize how financial and legal planning can help ease your future and ensure that you have planned for any contingencies.
Step 1: Run a Fire Drill
Check your current level of preparedness using a real-life scenario. For example, if one of you passed away tomorrow, outline what would happen according to your will and estate plan. Determine where your assets end up, how accessible they are, what taxes would be due, and when.
Step 2: Where’s the Fire?
Recognize unmet financial and legal needs. By using your surviving partner’s life expectancy and identifying future considerations such as inflation, changing returns on investments, potential long-term care needs, supplemental income sources and hiring others to provide services as needed, you can put a plan in place that helps solidify the future.
Step 3: Bucket Brigade
Reassign and develop your resources. Earmark assets for income, growth and liquidity. You may also want to review your insurance products. For example, life insurance can provide liquidity that may help a surviving partner maintain a lifestyle, replace an income or pension, or reduce debt. In addition, having a strategy for providing for potential long-term care needs can help ease any emotional concerns about the future.
Step 4: Coordination
Review asset assignment and ownership. Some assets will pass directly to partners and heirs through beneficiary designations and joint ownership. Discuss your goals with your legal and tax advisors to determine if your estate plan aligns with them.
Remember, a spouse may inherit your estate tax-free while an unmarried partner may be subject to taxes and probate. You may need to build some liquid assets into your estate plan to provide cash to pay taxes or decide to retitle accounts and property to pass directly to the survivor. Working with a qualified attorney to draft your will and estate plan within the current tax, estate and probate law can help reduce the contestability.
In addition, decide how you want your assets to flow to a surviving spouse or partner. Creating a trust may remove assets from your estate, reduce possible estate taxes and potentially protect your assets from creditors. A trust can be set up to provide for a spouse or partner during his or her lifetime, and if you choose, the remaining assets can be returned to the estate for other heirs upon your spouse or partner’s death.
Step 5: Follow-Up
Draft a current will and review it every two years, or update it along with major life events such as marriage, divorce, deaths, births and inheritances. Your estate plan may also be impacted if you have a reduction, increase or change in type of assets.
Many people have multiple goals. At the base is providing a lifetime of support for a surviving spouse or partner. The next level includes aiding children with an inheritance, and the upper levels address reducing estate taxes. You can secure a comfortable future for a surviving spouse or partner by reviewing your financial plan today and ensuring that it is realistic and dynamic.