Lessons Learned from Navigating Life Transitions

03.01.2021 - Leslie Bohner, Chief Fiduciary Officer and General Counsel, Pennsylvania Region

Successfully Tackling Life’s Major Transitions

Financial and estate planning often becomes a central issue during major life events such as divorce, the death of a spouse or during the sale of a major asset, like a business or a home. Transitions are part of normal life, but the COVID-19 pandemic has been a catalyst for more of these changes in recent months, and we expect this trend to continue into 2021.

Our financial planning and trust and estate experts provide their best advice to clients facing life changes.

1. What is the first thing you tackle when you are helping a client with a major life transition

LESLIE: The first step is to assemble the team of experts that will best serve the client’s needs. That team may differ depending on the situation, but it almost always includes a trust and estate advisor, a tax advisor and an investment professional. It also usually includes a specialized attorney, for example in the case of a divorce or sale of a business, or other experts depending on the problems that need to be solved.

GERRY: In cases I’ve worked on, especially in divorce, it’s common for clients to say they don’t need professional guidance, that they can work it out amicably among themselves or with a mediator. This is probably the biggest up-front mistake I see, and the costliest one down the line.

Having your own independent attorney or financial expert, even when you could potentially rely on someone else, is the best way to make sure all parties have independent access to information, and that the same information is available to everyone.

2. How do you help reduce stress during times of change? 

KEVIN: We understand that the stress that comes with significant transitions can make tasks like managing financial obligations seem almost impossible. This is especially true when someone loses a spouse or parent.

We find that too many people don’t have the conversation ahead of time. They don’t talk about it, so it often adds to what is already a stressful and emotional time when there is a lack of a good understanding of the family’s financial picture.

My advice is to share information and discuss your financial circumstances with one another early and often. There are always exceptions, but the more information your spouse or children have, the better equipped they will be. 

Also, from a practical perspective, you want to make sure there are funds available for immediate needs. For couples, I always recommend having a joint account with enough funds to support a surviving spouse for at least a year. Funds can get locked up if you’re waiting for probate or if there’s a change of trustee. A joint account will alleviate the timing issue and relieve financial stress until the remaining assets become available to you.

LESLIE: The most important advice I can give, regardless of the transition you may face, is to gain control over your financial picture as soon as possible. This means cataloging your finances—know what you have and how much you spend. There is always a lot of fear and anxiety around this exercise if you’re doing it for the first time, especially when it’s in the middle of making a major life decision or during an emotionally sensitive time.

Having a handle on this information provides peace of mind and allows you to see your next steps more clearly.

GERRY: And, although it is sometimes tempting to do, I advise clients to try to avoid making significant financial decisions right away. Don’t sell your home, move to a new city or change jobs. You need time to review your situation before you can make decisions clearly.

3. What’s the best way to take control of changing situations? 

GERRY: Making informed decisions starts with identifying your goals. For example, I recently helped a client who was working through a divorce. Her most important goal was to keep her home, but she wasn’t sure if she could afford to do so. We helped her identify her priorities in terms of what assets she wanted to keep and assessed the financial as well as the emotional value she placed on those assets.

LESLIE: In any financial matter, it’s important to understand that all dollar amounts are not created equal. Receiving a house with a significant built in capital gain in a settlement may be less financially beneficial than receiving the equivalent value in cash. If you sell the house, your after-tax proceeds will be far less than the sale price. If there is an emotional connection to the house, as there was in Christine's example, this may not matter to the recipient, but it should nonetheless be considered in the negotiations. 

GERRY: The same is true in the case of a sale of a business. You need to understand the significance of the sale in the context of your own personal goals. Does it make sense to sell now or later, based on where the business is headed or your own needs?

If you sell now, can you afford to live on the proceeds for the rest of your lives? Does it allow you to carry out any legacy plans you might want to put in place? Asking these questions and running projections of various scenarios can help you narrow in on the best course of action. 

4. Are there steps people tend to forget after they have gone through a major transition?

KEVIN: When your life changes, you need to think about your estate plan. You also need to make sure your accounts and insurance arrangements reflect any changes in ownership. We have seen some nightmare scenarios where estate plans aren’t updated after a divorce or death in the family, and even in happy events like additional children or grandchildren, or a significant change in financial position. If something happens to you, following through on all the details can save your family from complications and maybe even legal battles.

GERRY: In the case of a liquidity event like the sale of a business, it’s common to overlook the ripple effects of your new wealth. Personal insurance coverage may be inadequate. The estate plan may miss out on tax savings opportunities. 

People often dismiss updating smaller accounts or miscellaneous property interests, like an inherited interest in a family property. But often these are the ones that cause the biggest problems to sort out.  

LESLIE: Lastly, you need to keep track of changes in the lives of others you may rely on.  This includes people you’ve named as guardians, agents, executors or trustees for your family. It also can include the team of professional advisors Christine mentioned earlier. As a corporate trustee, we regularly partner with the family members and professionals in your life to be the backstop, make sure work gets done, and alleviate the impact of anyone being unable to act.

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.


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