The most recent data published by the Centers for Disease Control and Prevention shows that, as of 2014, 38 percent of marriages in the United States end in divorce. That divorce rate coupled with the fact that women’s life expectancy averages five years longer than men's means that 80 to 90 percent of women will be solely responsible for their finances at some point. Additionally, women are faced with losing wages, potential future income and retirement savings if they leave the workforce to raise a family.
For these reasons, it’s crucial for financial advisors to help women make their own financial needs a priority and create a solid retirement savings plan. Below are the seven most important estate-planning tools to provide to a divorcing woman so that she can maintain control of her financial future:
1. A Revocable Living Trust
A revocable living trust is a popular estate-planning tool that allows a woman to maintain control of her assets during her lifetime as well as from the grave. With this trust in place, she can decide how her assets will be handled on death, what assets her beneficiaries would receive and at what ages. For example, she can dictate that certain assets be given to charity, or she can set prerequisites for when her children receive the assets (upon college graduation, at age 18 or 25, etc.).
Another benefit of a revocable trust is that it avoids expensive probate if your client owns real estate or other property in several states. Assets named in trust avoid the costly courts and typically take precedence over the property designated in her will.
2. Wills and Will Substitutes
Update wills and will substitutes, such as beneficiary forms on individual retirement accounts following a divorce to ensure the named beneficiaries are accurate, and to make sure an ex-spouse doesn’t receive something he isn’t entitled to. If a woman doesn’t have a will, she’s not alone. According to a Gallup poll, only 44 percent of Americans reported having a will in place in May 2016. A will legally protects her spouse, children and assets and spells out exactly how she would like things handled after she’s passed on. This allows her to maintain control over final decisions, such as how her estate will be distributed, her funeral wishes, charitable donations and much more. Having a will helps reduce confusion or disagreement about the choices she would want people to make on her behalf.
3. Durable Power of Attorney
A durable power of attorney (POA) enables the client to appoint an "agent," such as a trusted relative or friend, to handle specific health, legal and financial responsibilities. This is especially important post-divorce in the event that she becomes incapacitated. Without a spouse, and without a durable POA in place, she’s risking that the courts will make the decisions for her.
4. Financial Plan
There’s a memorable quote in executive coach Brian Tracy’s book The Gift of Self-Confidence, which reads, “A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power.” That quote encapsulates the benefits of having a solid financial plan in place—and this is particularly key for a divorcée client. A financial plan helps bring your client’s financial situation into perspective and removes emotion from the equation.
Financial advisors often first assess the important factors affected by divorce, such as income, net worth, etc. As part of the planning, both they and the client determine together: “Where are you today and where do you want to be? Are you on track with goals? And if not, how can you get on track?”
5. Giving Plan
In addition to planning for your client’s family and loved ones, she may want to consider making charitable gifts as part of her estate and financial plans. Gifts included in wills and living trusts are popular because they’re flexible, easy to arrange and may be changed with her life circumstances.
6. Health Care Proxy
Who will make health care decisions for your client if she becomes incapacitated? Does she want to have the plug pulled or be resuscitated? These are grim yet important decisions to make while your client is of sound mind and body. A health care proxy is a durable POA specifically designed to cover medical treatment. She appoints an individual and grants to him the authority to make medical decisions for her in the event she’s unable to express her preferences about medical treatment. It’s advisable that your client confirm with her proxy that he’ll be willing and able to carry out her wishes.
7. Written Instructions
It’s advisable that your client have written instructions to give her survivors for information concerning important financial and personal matters that must be attended to after she’s deceased. The information usually spans:
- The location of the will, birth and marriage certificates, Social Security numbers, and other important records
- A summary of her investment accounts and insurance policies
- Details to access her safe deposit box
- Logins and passwords for her digital assets and social media accounts
There’s a handy “peace of mind checklist” that your client can use for this purpose. Her survivors will benefit greatly from this list of instructions.
Laurie E. Ingwersen is a senior wealth management advisor with The Harvest Group. The Harvest Group Wealth Management, LLC, is an SEC-registered investment adviser principally located in Waltham, Massachusetts.