Listen Now:
The Smart Take:
Losing a spouse is difficult. Losing a spouse that handles your household finances is devastating. Hear Tyler Emrick, CFA®, CFP®, discuss what you need to know to ensure your household is in good financial shape after you pass and how True Wealth Design helps families when they need it the most – after a loss of a loved one.
Here’s some of what we discuss in this episode:
Experience working with families in this situation. (1:26)
The problems that arise when just one spouse handles everything. (3:33)
Getting a person comfortable to make decisions and take over the financial role. (8:06)
How we advise people about the estate planning process. (10:57)
The division of labor in the household and Tyler’s personal experience. (13:23)
What are the typical changes for the surviving spouse? (20:21)
Have questions?
Need help making sure your investments and retirement plan are on track? Click to schedule a free 15-minute call with one of True Wealth’s CFP® Professionals.
Subscribe:
Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!
The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Intro:
Thanks for joining us for another edition of Retire Smarter. I’m Walter Storholt alongside Tyler Emrick, wealth advisor, CERTIFIED FINANCIAL PLANNER™ at True Wealth Design, serving you in Northeast Ohio, Southwest Florida, and the greater Pittsburgh area offices in those locations. But find Tyler and the team anywhere online at truewealthdesign.com. Tyler, good to be with you this week. How are you?
Tyler Emrick:
I’m doing great, Walt. How are you doing?
Walter Storholt:
Yeah, glad to hear that. I’m getting over COVID, so my voice is like 99% better, but if we had done this show a week ago, I would’ve sounded really funny.
Tyler Emrick:
Yeah, I can’t even tell, you sound like a true pro.
Walter Storholt:
I appreciate it. I had to push through a presentation remotely while I was kind of in the midst of it, and I literally, I talked for an hour straight. I have no idea what I said. I told them at the beginning, I was like, “In my head, I’m coherent, but I don’t think I’m probably coming through completely coherently.” So, I don’t know how it went.
Tyler Emrick:
Sure, it went great. Hey, one of those situations where you get done with it, and it’s like, “What just happened?”
Walter Storholt:
I asked for feedback on how the presentation went, and they said, “We didn’t get any negative feedback.” And I was like, “Okay, that’s something.” That sounds like a C grade. I’ll take the C.
Tyler Emrick:
That’s pretty good.
Walter Storholt:
That’s good. That’s good stuff. But yeah, glad to be back feeling better and excited to talk to you today, Tyler, although our subject will be a tough one today, but a necessary one to talk about and address, and we’re diving into the realm of decision making when there’s a situation of someone passing away during your retirement years and leaving behind a loved one, so widowed in retirement and had a plan for those financial changes. I’m sure this is something that, unfortunately, you see all the time in the office and have to help people navigate through, whether it’s planning on the front end or then dealing with the aftermath when it happens.
Tyler Emrick:
It is, being in our industry, being a financial planner, from time to time, we do lose clients, and it’s always a tough situation. And even more so, this topic is something that we are covering all the time with the clients that we work with. And on our website, we have a few different common client scenarios listed out on there, mainly for individuals that are looking into True Wealth Design to get an idea of our typical client that we work with. One of the scenarios that we have on there and we describe as titled, “Meet the Successful Smiths.” And it tells a story about one of our clients and how they had raised the family, had wonderful careers, always had saved by really all intents and purposes, done a good job with their finances, and not too bad from an investing standpoint either, but still decided to hire us.
And there’s a multitude of comments on there describing the why behind that. But one thing in particular that the husband had said was that they were looking for a competent, trustworthy financial advisor to help guide them and make the most of what they have. And more specifically, he wanted to make sure that someone he trusted was there to take care of his wife if he happened to pass first. And this is, Walt, something that a comment like this we hear quite frequently, especially when we talk to families where one spouse in the relationship might handle most of the financial decisions.
Walter Storholt:
Yeah, it’s tough, and that’s one of the problems when you just have one spouse in charge of everything, and then the other spouse isn’t in the loop, it creates all sorts of problems.
Tyler Emrick:
Last year I sat down with a lady who was referred to me from a client that I worked with for a number of years, and she brought in this huge stack of papers, and she had sat down and went on to describe how she had lost her husband a couple months prior and that she really wasn’t too involved in the household finances. He was a financial executive for a large manufacturing company here locally and really felt competent making those financial decisions for the household, and she was very much comfortable with that as well. So, they’d never worked with a financial planner before, and really it was all on her shoulders. So, she’s sitting there kind of describing this to me, she really relayed and said, “Hey, I’m starting from square one here. I think I got a handle on what I’ve got. I got all these papers, can you help me make sense of it?”
And that situation, like we described before, is really what the Successful Smiths were trying to avoid and try to help. And that way, if you lose a spouse that you’ll make some of those financial decisions or most of those financial situations, then the surviving spouse isn’t sort of stuck in that situation where they really feel like they’re starting from square one because when in her situation and when we come across situations like hers, well really our mind or my focus at the beginning there on that first meeting turns to, “Well, hey, let’s figure out what needs to get done now. What are some of the immediate decisions that we need to make to move the ball forward?” So almost a checklist, if you will, Walt kind of going in and saying, “Hey, what accounts do you have? Where are they at? What types of accounts are they?” And maybe even more importantly, “What are the registrations on those accounts?”
So, for example, she had a number of accounts, she had some accounts that were under just his name, she had accounts that had beneficiaries on, some didn’t, the house was actually in his name. They had a few cars that were just in his name. So when you think about his passing and then the work that she needs to do to get those assets into her name and re-registered to her, well, if there are no beneficiaries or there are no transfer on death instructions or anything like that, well then those assets are likely going to have to go through probate. And if anybody or any listeners had to go through probate, it can be a very tough situation with just being tedious, there could be extra fees involved, and it just makes the process that much harder. I don’t know, Walt, if you had any experience having to help someone through probate or not, but it’s not fun.
So when we’re looking at estate planning and developing documents to help facilitate that transition, in the back of our mind, one of the things that we’re trying to be very mindful of is trying to avoid probate if we can in every situation. Now for her, it wasn’t like she didn’t have estate planning documents, they had a will and some other basic estate planning documents that were put in place, but they really weren’t implemented all that well. Actually, she had handed me the will and said, “Hey, is this all that we need?” And when I went in, and we had some more deeper conversations about what a will is going to do, she didn’t know that a will was actually instructions for the probate court to help facilitate the assets.
So, anything that she was going to inherit that she needed to transition to her name, well if it passes through the will, it’s going through probate. So it pretty much ensures that some of those accounts were going to go through that way. So, a lot of that first meeting was us just trying to, again, wrap our arms around what she had and what were some of those big major action items she needed to take care of. But as with anything, our focus sort of switched towards the end of that meeting. And I was just asking her saying, “How do you feel about some of these decisions and making them?” Because, like she had mentioned, she’d never been in a situation where she had to make too many of those financial decisions. So I really wanted to be mindful that this was likely new to her. I mean, could you imagine having to, one, be grieving with the loss of your husband and then, two, having to start making some very important, impactful decisions that you’ve really never had to make before.
Walter Storholt:
Learning a whole new skill, a whole new bank of information and all that on top of everything?
Tyler Emrick:
Yeah, that’s right. And as I think about, so very quickly, I realized that I don’t think that, and she even said, “I’m not at a place to where I feel comfortable with that.” So once we got those initial items taken care of, I would say our focus shifted quite a bit, and we really turned to our main objective was getting her to a place of comfortability to make those decisions. And as with anything, me being very process oriented, I’m like, well, hey, let’s work on a financial plan and start to paint the picture and give you an idea of are you going to be okay? How are things going to look? So that way, you can have the confidence to start making some of those decisions.” And in her situation, what I thought was really great is she had two children, and we actually were able to invite them in on some of those subsequent meetings and get their input.
And I could just tell having them in the room as we’re kind of talking through some of these decisions and what her finances look like, you could just really tell she was leaning on them, and they had very, very good input and back and forth. And over the course of those next, I’d say, month or two of us working on that, she got at least to a place where she felt comfortable. And even more so, her situation specifically, she had brought up through our planning process that her and her husband were hoping that they could start gifting some money to their children. They just never really put pen to paper and actually did it.
And we were able to use this opportunity to once she was like, “Okay, I’m going to be all right.” We could turn her focus, and actually, she ended up doing some gifts to children in the way of disclaiming some of those inherited assets to where they wouldn’t go to her, and they would just flow right down to the children, which ended up really knocking out a few things on her goal sheet where we were saying, hey, she wanted to give to the children, she didn’t quite know if she could financially, when we checked that box off she could. And then two, we did it, we were going to have to handle some of those decisions through the probate court and through that transition. So we were able to just go ahead and do that in an efficient manner to where the kids actually got some money out of the whole ordeal.
And then, of course, we did it in a pretty tax-efficient way as well because it helped her avoid some taxes down the road in the form of RMDs. So, all in all, a pretty good situation but very, very tough at the time. And looking back on it, trying to juggle all these things and then also trying to grieve it can be a lot. So ideally, we’d like to do that on the front end, Walt, if we can, and try to plan for that ahead. But that was the situation as I think back to that comment about the story, Meet the Successful Smiths, and what he was alluding to that whole process was what he wanted to avoid for his spouse if it were to come to that.
Walter Storholt:
This might be something you want to address later in the show, Tyler, so if that’s the case, please feel free, we can punt this question, but I’m just curious, you mentioned estate planning and estate planning documents and that sort of thing. How do you guys advise people about estate planning? Are you able to do it with just the financial perspective and point people in the right direction in terms of what documents they need? Or do you suggest people work with specific estate planner?
Tyler Emrick:
I think the comment you made about, does it start with the finances? I think that’s fairly accurate, very accurate. I think one, you have to get a handle on what your finances are going to look like down the road, how they’re going to change. And we do that by creating a financial plan. But once we’ve got that in place and we’ve done all the work needed to get the families to a place to where they feel comfortable, and then we can turn our attention to start identifying and using that plan to say, what are some of the concerns that financially you should be aware of in regards to your estate? And then once we’ve identified those concerns and talked through them, then it turns to, well, hey, how do we implement and actually start getting these estate documents in place? What estate documents do you need? Do I just need a will? Do I need to go through and get a trust? And that’s very situational depending on the goals of the family, the assets, and a whole host of other things. But it does start with that financial picture, and then you can move down into what the family’s trying to accomplish and then finally the implementation of the actual document creation and implementation.
But I think what’s very important with that whole process and what I think gets lost in translation sometimes is that final step of the actual implementation. Walt, you wouldn’t believe the amount of families that come in, and we’re meeting with, and they might have the documents in order and updated, but yet they haven’t taken one step further and actually put their house in a trust or put their taxable brokerage accounts and move them underneath the trust or updated their beneficiaries or their transfer on death instructions. These documents are great to have, but if you don’t get them in place properly, things fall through the cracks, and it’s very easy to do and not handle that final step in the process.
Walter Storholt:
So you see people like the football player that gets returns the fumble 98 yards but stumbles right before the goal line. You see people get almost all the way there but then miss a few key pieces at the end.
Tyler Emrick:
Correct. You nailed it. I think that’s a wonderful analogy. And then two, even as we’re thinking about just the logistics of getting the documents in place and so on and so forth, I mean, I want to kind of go back to that thought of how common it is that one spouse manages most of the household finances. I think back just to my own personal circumstances there, Walt, like with my mom and my dad, my mom passed a number of years ago, and my mom actually handled most of the finances for our household. And if you look at some of the data, I don’t think that’s too uncommon that women actually handled everyday expenses, check writing, handling the bills, and so on and so forth like my mother did. I’ve seen numbers as high as 85, 80% of women do that. But where things I think fall short is when you take the lead on long-term financial planning decisions, I think women are a lot less involved, at least statistically, on making those decisions.
And then if you look at it from the husband’s standpoint as well, I mean very similar statistics where it’s almost this division of labor in the household. And if one spouse is good at something, really maximizing that and letting the other spouse do something else, right? Because we all live busy lives, and I think my family was no different than that, but when my mom passed, it was very hard for us to wrap our arms around what needs to get done just from a day-to-day standpoint of all the bill-paying and check writing and all that good stuff. And over the years, my dad certainly can handle it now and has gotten much more comfortable with it. But it took time. And again, I think the thing that we don’t want to lose sight of is that we had to do that as a family after Mom passed. We didn’t do it the right way and do it beforehand.
And when you’re grieving, and you’re trying to go through that and make these decisions, I think that makes it a lot more difficult to get to a place to where you feel comfortable. In my dad’s situation and our family situation, one thing that we did have going for us is that there was a trusted financial professional to help us navigate through it. My dad, I’m his son, so if you can’t trust your son, hey. So, we had a little bit of that, I don’t know if I should go that far, but it certainly helps. Hopefully, I wouldn’t put my dad in a bad situation, but I think some families don’t have that, right? They don’t have a financial professional that both spouses trust. And I think that’s important, both spouses trust. I’ve heard stats upwards of 80% of widows actually switch financial advisors within a year of their husband’s death.
Walter Storholt:
Wow.
Tyler Emrick:
That’s a pretty wild stat. I figured it would be high. And I’ve definitely experienced this as well, but there’s definitely a disconnect there where maybe the spouse who handles most of the finances has a wonderful relationship with the advisor that’s helping the family, but the other one hasn’t maybe had that face time and hasn’t been able to voice their opinion or develop that relationship to feel comfortable with staying with the advisor.
Walter Storholt:
That’s fascinating.
Tyler Emrick:
It is, right? Well, and I’ve experienced it. I think back to a family that I met a while back. She had come into me and very, very successful. It was just her. And when we got to talking, and she’s like, “Hey, I want to start working with you. I want to create a financial plan. I know I need to do this, and I think it’s just going to be me, my husband, he doesn’t enjoy numbers, he doesn’t like taxes, finance, he’d much rather be doing anything than come in here and start talking about that type of stuff.” When I experience that early on, I really try my best to explain just the importance of having, in this case, him involved. I think it goes a long way. And any way that we can get both spouses involved, there’s value to that.
And we were able to, I would say, finally pull him in kicking and screaming when we went through that initial planning phase or that initial plan development. So, on those first few meetings, as we were starting the relationship and talking about goals and what they’re trying to accomplish and things, we did end up getting him in on those meetings. But over the years, especially within the last couple years it started, less and less meetings attended Walt, right, that old, “Oh yeah, just me today. Yeah, he’s not going to join.” So on and so forth. So I’d say over the last two years, I’ve talked to him over email and over the phone, but we really haven’t got him in to have a financial planning meeting and some of those financial planning updates.
And she had come to me at the end of this past year and was like, “Hey, I think I’m going to pull the trigger. I’m going to go, I’m going to retire.” And their family dynamic was she was the breadwinner. So, she had a sizable income that was coming into the household, and that was going to get shut off. I mean, that’s a huge change for their situation and she was going to jump into this endeavor, and I was talking, I was like, “Hey, so you think we can get him into the office here? It’s a big change. How’s he feeling about it?” And we kind of tossed some ideas back and forth. And what we came up with was, well, since he doesn’t like the numbers or the detailed financial planning tax strategy investments, things that typically that we would go over, let’s get a meeting together where we don’t talk about those things, those aren’t the objective.
Walt, you wouldn’t believe it, but I did not have a meeting agenda for this meeting, and that’s big for me, process-oriented, have to have it down. But we really wanted to get an environment where we thought he would feel the most comfortable. And at the end of the day, we really wanted to get him to a point to where he was comfortable with the decision as well, and getting down into the weeds wasn’t going to benefit him, in our opinion. So, we were able to get that meeting, get him in, and literally, we just talked about the transition, “How do you feel about it?” Maybe not all how you feel about it, but “What concerns do you have? What are you going to do?” And kept it lighthearted and really gave him a forum to ask questions.
And I was surprised, actually, I think it opened him up. I think he felt a little less stressed about it and was able to open up, voice some of his concerns, and we were able to get on the same page, and she’s actually retiring here in the next month. So I think it was a really good meeting, but we had to sort of think outside the box to get him back engaged and get him involved. And I’ve done this in the past where maybe we change the venue, maybe we’re not having a meeting where a spouse typically comes into the office, maybe we go and have it over breakfast, or we have it over lunch. So, it feels a lot less formal, and it seemed to work out, but I think if you work with a financial advisor, if you don’t have these types of conversations, doing what you can to get your spouse involved is important. We don’t want them to find themselves in a situation where heaven forbid you pass, and they’re kind of stuck holding the bag, and they don’t feel comfortable with either the financial advisor that you’re working with or comfortable making those decisions on their own.
Walter Storholt:
Great points across the board here. And Tyler, I’m just curious, what else should we know about this subject? Because it’s layered, and there’s two totally different processes here that you’re lining out. The one where we handle it in real-time and then the one where we can plan in advance for it.
Tyler Emrick:
Yeah, we’d really like to plan in advance. I mean, come on Walt, we’re planners. So-
Walter Storholt:
That’s definitely option one.
Tyler Emrick:
… Are you surprised I say that?
Walter Storholt:
Not surprised on that part.
Tyler Emrick:
Let’s do it ahead. But I really wanted to paint that picture of after the fact of how we can navigate it, but it is, I think, a lot more difficult. Anything we can do beforehand is extremely helpful. And I think we’ll finish up today kind of just talking about, well, what are those typical changes for the surviving spouse, and how do we sort of plan for it? The way our process is set up is once we’ve kind of worked through a financial plan, and we got that base situation kind of taken care of, and we’re feeling good about it, well, then it’s my job as a financial advisor to go in and try to poke holes to say, “Where are the concerns or where could this plan go awry and how do we plan for it?” And one of those, we call that stress testing the plan. And there’s a multitude of ways that we can do it, but one of the ones that we stress test against is what happens if each spouse were to pass. Would the other one be okay? And how does the plan change?
Because there are a host of changes that happen if you go through a situation like this where a spouse passes. I mean, you think about it, there’s income changes. So if you both are drawing social security, well, if one of you pass at least one of those social security checks are going away. If you’re living on a pension plan, well, depending on the pension elections that you made, and if there’s any survivor benefits on it, that pension check might go away or might be cut in half. Building on that as well as there’s going to be tax changes too. You’re going to go from married filing jointly to filing single. That means you could be paying more in taxes down the road than what you were originally planning on because those tax rates for single individuals are much, much more compressed than they are if you’re married and filing jointly.
And I think maybe one of the more obvious ones would be spending changes and how those might change if you were to lose a spouse. Not every family goes through a bunch of spending changes, but depending on how your plan’s set up, depending on your lifestyle, all that stuff is going to go down into it. And those spending changes, sometimes it would just be natural and sometimes depending on the plan and the way you set it up, it would be built in and expected that, hey, if something happened, then my spending would be cut by 10% or whatever and I feel comfortable with that. But at the end of the day, I think it goes back to saying, hey, understanding the best you can some of these scenarios, and then feeling comfortable if something like this were to happen that financially you’re going to be at a place to where you’re at least comfortable and you can focus on the things that are extremely important if you find yourself in that situation, like taking care of your family and grieving as opposed to really having to stress and say, “Am I going to be all right financially?”
And then finally, I think the estate documents, we touched on it a little bit. You had a wonderful question there earlier, Walt, about just the estate documents in order, but I definitely think if you haven’t updated your estate documents in a number of years, getting those updated are important. Identifying if you need a trust or if you should get a trust in your situation. And then two, getting those documents at least drafted up by a professional and then getting them implemented, getting your trust on your house if that’s what you’re trying to do, getting transfer on death instructions on your checking account. Any way that we can help avoid probate and make that transition as smooth as possible, I think is a win-win all the way around.
Walter Storholt:
Great outline of some action steps and some things to be thinking about so we can be on the front end of that planning process and not reactionary to when this likely will happen to a lot of couples in retirement. I mean, we all know where we’re all going, where things are going to end up for us as individuals, and it’s not always at the same time as our partner. And so being widowed in retirement is something almost all of us are going to experience, or at least all couples will experience one of the two having to go through that event. So the better we can plan for it, the better we can be when that unfortunate time comes. And boy, I think you just drove home a key point earlier in the show too. You don’t want to be dealing with all of the financial fallout and that kind of stuff when you go through this. You want to be able to focus more on the emotional side and your family members and the people around you and have your attention be there and not so much on this other side of the equation. And so that’s the real payoff of that planning in addition to the actual numbers, it seems like to me. So I appreciate you highlighting all those different moving parts there, Tyler, I think that’s really helpful.
If you would like to go through the planning process with Tyler and Kevin and the great team at True Wealth Design, cover some items like this, I mean, this is just a piece of the overall planning process, making sure that you’re prepared for these kinds of things in retirement. But if you want to get a more full picture of everything else that would be involved throughout the planning, you can set up a time to visit, see if you’d be a good fit to work with the True Wealth Team by going to truewealthdesign.com, and click the Are We Right for You Button to schedule a 15-minute call. Again, truewealthdesign.com, the place to go. You can also call 855-TWD-PLAN (855-893-7526). Tyler, thank you for all the help and guiding us through this conversation today. Really appreciate it.
Tyler Emrick:
Oh, I enjoyed it.
Walter Storholt:
Hope you have a great rest of your week, my friend, and I know we’ll be back with another great episode on the docket next time around. So come back and join us then, folks right back here on Retire Smarter, until then, take care.
Disclaimer:
Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
