Sudden Death Doesn’t Just Happen to Rockstars and Celebrities
The recent untimely passing of Prince, along with speculation that the singer died without a will or estate plan, serves as a reminder that sudden deaths can leave household finances in disorder. Not only do advisors potentially face the chaos of unfinished estate plans or out-of-date wills, but they are frequently called on to help grieving families deal with day-to-day finances.
“Sudden death puts the surviving spouse in a state of extreme shock and vulnerability and also unleashes a lot of financial tasks,” says Aviva Pinto, a director at Bronfman E.L. Rothschild in New York. Pinto, whose firm manages $4 billion, also notes that in many cases the surviving spouse is not familiar with the estate plan or other financial details.
And even when the surviving spouse is familiar with those details, they are typically so overwhelmed with grief and fear that they lack the focus to take on simple tasks, such as paying a utility bill.
“Online payments can make paying bills difficult in these circumstances,” explains Pinto, particularly if notices are routed to the deceased spouse’s inbox. She says she’s known surviving spouses who received foreclosure notices or had the gas turned off because digital warnings went unanswered.
To deal with these issues without overwhelming clients, Pinto helps them focus on items that need immediate attention in the first year following a sudden death. She counsels them to delay any long-term decisions until they feel more emotionally secure. To provide further peace of mind, she also helps them reach out to professionals, such as an estate attorney or accountant, to avoid making costly tax or investment mistakes.
Deal with difficult family dynamics now
While the time of someone’s death can’t be planned, it is possible to prepare for it. Robert Braglia, president and owner of New York-based RIA American Financial & Tax Strategies, Inc., has learned from experience that it’s particularly important to address dysfunctional family dynamics while everyone is still alive.
“Many years ago, a widower client who was in his mid-70s and healthy died suddenly, just six weeks after the death of his wife,” recalls Braglia, who manages $100 million. “We had made plans to update his beneficiaries and other paperwork but he didn’t get to it because he didn’t feel a sense of urgency.”
The client’s death left a financial mess in Braglia’s hands. Even worse, it left him to deal with the client’s drug-addicted son. During the 20 years that Braglia worked with the couple, they would only talk about one of their sons. At the time Braglia didn’t press the issue; looking back, he sees that he should have asked the “rude questions” that may have helped the family plan around the son’s substance abuse issues.
Instead, the boilerplate beneficiary designations on the retirement accounts put the funds into the hands of the couple’s two adult sons.
“Clearly his share of the IRA money should have gone into trust,” says Braglia. “While I try to restrict and guide him, it’s his money and he’s blown through a lot of it.”
Discuss the details ahead of time
Even when planning is in place, sudden death can still create drama if all parties aren’t aware of the situation. Adrienne Penta, senior vice president and executive director of Brown Brothers Harriman’s Center for Women & Wealth, had one client left open to a lawsuit because her husband didn’t fully communicate the details of his estate plan. The plan left no inheritance for the three children from her husband’s previous marriage.
“Right away she knew that this would cause problems in the family,” recounts Penta, whose firm has $27 billion AUM. “It did, in the form of a protracted probate contest concluding in the estate paying a significant settlement.”
Today Penta encourages all her clients to share their plan, and more importantly the intent behind the plan, with the adult members of their families.
“It can be extremely difficult for a family to be left without the benefit of the rationale behind the plans. They are left to draw their own conclusions,” she says. “For better or worse, our estate plans are often the last declaration of what we value.”