By Michael Dubes
Jennifer and William Dow were married in their early twenties, just after graduating college. William earned his degree in physical science but decided instead to follow his father’s footsteps in the life insurance industry. He eventually gravitated to financial planning, earned an MA and became a Chartered Financial Consultant. William became expert in retirement and estate planning and minimizing taxes.
Living the Dream Life
With a degree in Interior Design, Jennifer secured her membership credentials by passing the ASID’s rigorous qualifying exam and started her own business. The business prospered and her design work was published in several home décor magazines.
The couple spent the next eleven years successfully pursuing their careers. They purchased a 3,000 sq. ft. home, which was important to the couple as a residence, an investment but also as a pallet for Jennifer to ply her design and decorating skills while William enjoyed landscaping and home maintenance tasks. In the eleventh year of marriage, the couple was blessed with the birth of a daughter; another daughter followed four years later. William and Jennifer were living what most people dream about: a loving relationship, healthy children, close friends, thriving careers, and a beautiful home.
After the birth of their second child, William used his professional knowledge to set up an irrevocable life insurance trust for Jennifer and the children, should anything happen to him. He was working for Sun Life at the time, where he was considered a planning and tax expert. In fact, other agents frequently consulted him about financial products and strategies for their clients. Given his level of expertise, William felt comfortable setting up his family’s estate plan, including the trust.
Facing Complex Financial Decisions Alone
What neither William nor Jennifer anticipated was William’s sudden, unexpected death less than ten years later, at age 44. After 22 years of marriage, Jennifer found herself alone and facing complex financial decisions regarding her future and that of her 8 and 12 year-old daughters.
Despite her financial acumen and being well prepared for the task, the financial decisions proved challenging and emotionally overwhelming. For 20+ years, she had operated a successful business, and had also invested in some rental properties. But while Jennifer paid the bills, maintained the files and balanced the family’s budget, William was in charge of the family’s major financial decisions, the most important of which ultimately determined how Jennifer and the kids would fare on their own after his death.
Jennifer was aware of the couple’s assets and obligations, but didn’t really care to be heavily involved; she left that to William. He created a binder and told Jennifer “If anything happens to me, this is what we have, this is who you need to contact, and this is what you need to do.”
Says Jennifer, “While we were equal partners in virtually all our decision-making, I was more the organizer and William the planner. I really didn’t get involved in the details of our financial and retirement plans. I think in our society it tends to be the man we rely on to make those decisions. And in our case, given William was a financial professional; I left that all up to him. I trusted he knew what would be best for us.”
Unfortunate Omissions and Flaws in His Plan
Unfortunately, while William’s intentions were admirable, his execution of the trust was flawed. While most of the provisions were done correctly, a few were not and those omissions proved to be costly for his family. His biggest mistake was not putting together a team of advisors to ensure his plan would not suffer unintended or adverse consequences. In particular, William omitted having an attorney versed in estate planning review the document. As a result, a significant portion of William’s estate tax credit — approximately $600,000 — was lost.
William also handled all the couple’s taxes, both personal and for Jennifer’s business. William took care of all the forms, which was fine with Jennifer; she just signed them and off they went. When William died in late October, one of Jennifer’s first tasks was to find a CPA to review the family’s financial history and take care of taxes. During her first holiday season without William, she was scurrying about interviewing accountants.
Another priority was clarifying the trust provisions with an attorney. Initially, there was no time to deal with investments. That turned out to be fortuitous, as she later was advised by one of William’s advisor friends not to make any fast decisions regarding investments, but rather to wait a year until she could make decisions without the heavy emotional cloud of William’s death hanging over her. Jennifer was fortunate to have sufficient funds available not to feel pressured into making investment decisions right away. She was free to take care of her family’s immediate needs and get a handle on existing debts and overhead. About eighteen months later, she turned her attention to the trust investments.
Working Through the Emotional and Financial Turmoil
The emotional turmoil surrounding William’s death had caused Jennifer onset depression. She decided to give up her business and focus attention on her and her children’s well being. Survivor benefits from Social Security helped meet expenses, but the benefits would run out, as the children grew older, ending when her youngest reached 18. Jennifer’s rental properties had appreciated but were still showing negative cash flow and were straining her both emotionally and financially. She decided to liquidate all but one of the rental properties, primarily so she could keep her home.
She knew the house was larger than she and the children needed, and the upkeep was a financial drain, but when William died, she vowed not to subject her daughters to a major lifestyle change. Her goal was to keep the house for ten years until her youngest graduated from the local high school where she grew up. After that, she could live with moving into a smaller place, clip coupons, do whatever was necessary to get by, but she was determined to provide her girls the stability of remaining in the home where their father had helped raise them. That objective remains unchanged as Jennifer has three years left on her ten-year plan.
Jennifer stresses the importance of establishing a close working relationship with a team of advisors: CPA, estate attorney, financial planner and investment advisor. Despite the advantages of her husband having been a financial executive, the experience of running her own successful business and what seemed like a substantial life insurance benefit, things did not automatically progress smoothly after William’s death.
One problem was that since William had handled all the financial planning and trust investments, Jennifer did not have a working relationship with a CPA or an investment manager. Initially, she was directed to an investment advisor who put Jennifer into some investment products. But Jennifer soon became concerned anxious about the income level she was receiving, and she worried she might have to sell her house to meet expenses, something she had told the advisor she absolutely did not want to do. But when she tried to express her concerns, the advisor seemed uninterested in her plight. “It’s the old story with some people; once they’ve made their commissions for selling you these investments, they’re not interested in talking to you anymore” says Jennifer.
Finding the Right Financial Planning Team
It was about this time, about two years after William’s death, that Jennifer attended a trust seminar. Jennifer had met the financial advisor who presented the seminar previously at one of William’s company events, but she did not know him well. She reintroduced herself to him at the seminar and asked if he could help her with her planning and investment concerns. “I went to his office and interviewed him. I wanted to know if he was just another advisor interested in a product sale or if he was genuinely interested in my needs and wishes, if he would listen to my concerns. I’ve learned that he is indeed different. I feel very confident that with his help, I’m making good decisions, good choices, for myself, and the girls. I know our interests are important to him. I also recommended the advisor to one of my closest friends and she is very happy with the work he as done for her and her parents. He hasn’t pushed any products or anything else. He’s extended himself in trying to help them with their planning. I think it’s admirable for someone in his business to invest their time and put in that kind of effort for people and their family.”
Jennifer believes it’s important to find advisors who are not only knowledgeable about the financial ramifications of your decisions, but who also will consider the emotional aspect. “Sometimes, the best financial choices are not necessarily the best psychological choices. An example is my decision to pay off my mortgage and keep my home because I felt it was vital that my daughters not be uprooted as a result of William’s death. I know I may have given up some investment returns by paying off the mortgage versus investing the money, but keeping the house for my girls and having it paid off so I knew I would not have to sell it unless I wanted to was my priority. My financial advisor understood that, and while he advised me that I might do better financially by keeping the mortgage, he did not push the issue once he realized how important it was to me to have it paid off. That’s what I mean by an advisor being able to balance your emotional needs with your financial needs. I think it’s important to find an advisor who will listen and take your priorities into account when advising you on finances.”
Relieved to Have It Right the Second Time Around
In recent years, Jennifer has met many women who lost their husbands. “We have a group now and we meet and trade stories and I’ve learned I’m probably the best off mainly because of the financial planning that was for me. Of course, I was lucky to have the resources to be able to afford quality advisors. I know women who can barely afford to get their taxes done, much less have money for investments. That’s really sad.”
Today, Jennifer’s original trust set up by her husband is still in place (it is irrevocable and cannot be changed) but the assets and how they are allocated have been rearranged with her advisor’s help. Jennifer also has her own living trust with the girls as beneficiaries. “Now there is a third trust where I have an irrevocable life insurance policy on me for the girls. Unlike the original trust my husband set up, with the help of my estate planning team, I feel confident we have everything set up correctly this time.”