June 26, 2019
This is the second blog in a three-part series that focuses navigating loss.
Navigating the loss of a spouse or partner—whether due to death, mental incapacity, or divorce—is never easy. Major life events like these often require a multitude of legal and financial decisions that can be confusing under the best of circumstances. When combined with the emotional trauma of dealing with such a loss, these decisions can feel overwhelming.
While you can’t always prepare yourself emotionally for loss and its aftermath, you can make sure your legal and financial affairs are in order before you’re faced with a personal or family crisis. Though no one wants to assume a worst-case scenario, preparing for the worst can protect you and your family from additional hardship. One way to prepare is to understand the process of navigating death, incapacity, or divorce and take preventative measures where possible.
Here are some key considerations when facing the loss of a loved one:
First, it’s helpful to understand how the estate settlement process works. To initiate the process, you’ll want to find and file the decedent’s will with the local probate court, contact your family’s advisors—legal, financial, and business, if applicable—and gather any relevant documents that can assist them in helping you through the process. This includes a list of accounts and all financial paperwork to determine the decedent’s assets and any life insurance policies they held. You’ll also want to have a copy of the death certificate available, as well as the name and contact information for the executor of the estate (if someone different than yourself).
Once you’re organized with the appropriate documents, you begin the administration stage to determine the value of the assets in your partner’s estate. Your accountant or financial advisor can then help you pay bills and expenses, prepare tax returns and pay any necessary taxes. Generally, after all the administrative work is completed, assets can be distributed from your partner’s estate to all beneficiaries, and the estate will be closed.
The estate settlement process is often complex. For a more complete discussion, please refer to the Estate Settlement white paper booklet by CIBC Private Wealth Management.
Mental incapacity occurs when someone can no longer understand relevant information or make sound decisions to provide for their own basic needs, look after their own health, or manage their own finances. In general, an appropriate first step is to establish power of attorney, medical directives and trusts to protect financial assets. Both you and your partner should put directives in place before any evidence of cognitive decline to make sure you’re protected in the event of incapacity.
If your partner starts to quickly decline before these directives are established, you’ll likely have to go through the difficult and often emotionally draining process of petitioning the court for guardianship and conservatorship. Guardianship allows you to make healthcare and medical decisions on behalf of your loved one, while conservatorship gives you the legal right to manage their assets and make financial decisions for them.
Petitioning for either can be very costly—various expenses are often incurred during the process of determining whether an individual is incapacitated. You’ll likely be required to pay attorney, healthcare provider, and social worker fees as the court makes its determination. Ongoing responsibilities as a guardian and/or conservator can also be expensive—an important consideration while going through the financial planning process.
The divorce process often depends on its level of complexity and the cooperation of both parties. In general, both you and your spouse will be required to disclose all assets, liabilities, income and expenses. Your legal and financial advisors can help you gather this information and navigate other complex issues like spousal and child support, insurance, retirement and Social Security, which tend to lengthen the divorce process. Generally, once the court enters its judgment, the divorce is final. However, your marriage isn’t formally dissolved until the end of your state’s waiting period.
Though it may seem morbid, it’s never too early to plan for loss. Women tend to live longer than men, cases of dementia and cognitive decline are on the rise and the U.S. divorce rate remains relatively high. The best way you can prepare is to educate yourself on these issues early and take the necessary steps to protect yourself legally and financially in the event of unplanned or untimely loss.
Read the first blog in this three part series on Preparing Yourself Financially for Loss.
Cathy Schnaubelt is a senior wealth strategist for CIBC Private Wealth Management's Houston office, with more than 35 years of industry experience. In this role, Cathy is responsible for the development of integrated wealth management solutions and provides comprehensive estate and financial planning services to high net worth clients.
July 11, 2019
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