The team here at BCR® Wealth, Birmingham, AL based, financial advisors, has regularly been called on to assist with financial planning when a spouse passes away and the transition that occurs for the surviving spouse. If you or someone you know has lost a loved one, here is a checklist showing areas an advisor at BCR would potentially help with. I’ve also included my thoughts on what to consider regarding the other professionals involved and the surviving spouse’s lifestyle.
Before I get started into the financial aspects, I would be remise not to acknowledge the loss of a loved one is very stressful. If you are reading this to prepare for a potential future loss, I commend you for taking advantage of the opportunity. If you weren’t able to read this prior and you recently lost someone, I understand finances are one of many areas that can keep you up at night, but there is so much more you are juggling as well. Beyond your finances:
- Allow yourself to grieve.
- Find a support system among your friends, family, and support groups.
- Celebrate the memory and time you had with your spouse.
Selecting Professionals Involved In Probate
In my experience, the clientele that we work with needs an attorney to assist with the probate proceedings, but they can usually be the executor themselves. If there is no will or the documents select someone, you may not have a choice. As I review this checklist, the first thing that stands out to me is determining the right attorney and if necessary, the right executor. This is important not only to get professionals that have experience and competence in estates like the one being handled but also to make sure the costs are understood and reasonable for the client.
To understand the cost variances, you must understand how the professional you are considering charges to be the attorney or executor. I have seen both attorneys and executors charge in two ways.
- Hourly based on the work they do.
- A percentage of the value of the estate being probated.
Think about the difference in being charged hourly for the work done or a percentage of the value of the estate being probated. Let’s think about a professional executor as an example. In Alabama, courts have approved professional executors’ compensation up to 5% of the value of the estate being probated. Imagine the deceased has a $2 million estate. With a 5% fee the executor can charge $100 thousand. Alternatively, you find a professional executor that charges $500 an hour and completes the probate in 20 hours, the estate owes them $10 thousand. A professional with experience, that is in demand, justifies higher compensation. Unfortunately, sometimes you pay more because the professional has figured out how to bill more.
Beyond costs, what needs to be done to determine the right attorney and executor is usually impacted by when they became a client of ours relative to the loss of their loved one and how involved they allowed us to be in the decisions to setup their documents.
For clients that involved us in the planning with an attorney long before the spouse was lost, the attorney that drafted the documents was usually selected to be a fit to also assist handling the probate.
For individuals that have sought us right after they lost their spouse, we regularly find that neither we nor they have a current relationship with the attorney that wrote the documents. In this situation we need to explore if the attorney is still around and if the attorney’s knowledge of their own documents is important.
Estate size, assets within the estate and complexity of the deceased wishes can affect which attorney has the right experience.
Typically, it costs a little more before the spouse passes to create revocable or irrevocable trusts intended to avoid probate. While it can cost more than a standard will when they are created, they have the potential to reduce costs and effort when someone passes. Revocable and irrevocable trusts can be used for many other benefits and strategies but that is a topic for another day.
The Surviving Spouses Lifestyle
It can be very stressful for a surviving spouse and their children when the deceased was primarily responsible for their finances without including an advisor, the spouse, or their children. We have been introduced and helped with far more cases than I wish existed that do not understand how much they have been spending and their odds of outliving their money. In these situations, I have seen surviving spouses both spend wildly more than they should or do not maintain their standard of living out of fear.
Understanding cash flow changes around social security, pensions, and other sources can give peace of mind around the time sensitivity to address spending after a loss. In ideal situations, we can look over some areas quickly and tell the survivor and their family a reasonable timeline that we need to work on the finances so that in the beginning they can focus on their emotional needs and non-financial changes going on.
Understanding fixed costs and reoccurring bills are important. Does something need to be done to make sure the mortgage, utilities, and other bills are identified short term? Some people have auto drafts setup, and one must be warry about the impact when the bank is notified that an owner is deceased. For others, the deceased was writing checks as invoices are received and someone needs to be cognizant of the locations those invoices come to. In either case, it is good to review prior months statements to understand how much goes in and out of an operating account to make sure enough is maintained in it.
Once you are past the short-term phase, the long-term lifestyle should be addressed. For clients we have worked with long before the loss addressing any planned adjustments tends to be minimal. For new clients that may not be able to tell us what the plan was we use software to analyze what they have, what they still expect to receive, and what their goals are to determine what adjustments need to be made to reach their goals.
If you have more questions about financial decisions when a loved one is lost, please don’t hesitate to reach out.
