At Howard Bailey Financial, we understand that every financial journey is unique. Our team is dedicated to helping clients navigate a wide range of situations, from planning for a secure retirement to managing unexpected life transitions. The case studies presented here are based on real experiences, offering a glimpse into the challenges our clients have faced and the solutions we’ve developed together.
These case studies are from clients of Howard Bailey Financial, LLC, and while their experiences are authentic, they may not be representative of all clients. They are not compensated for sharing their stories, as any compensation could create a conflict of interest. Additionally, past experiences do not guarantee future performance or success. To protect privacy, names and identifying details have been changed, but the essence of each story remains true.
The Importance of Estate Planning and Financial Transparency
Margaret, a recent widow in her late 80s, reached out to our office in a panic after filing her first tax return without her husband, Tom.
After more than 60 years of marriage, she was not only grieving his loss but also overwhelmed by the financial responsibilities that had suddenly fallen on her. Tom had always handled their finances alone, and while he had done an excellent job investing, he never shared key details with Margaret about where their funds were, why they were there, or what she should do if something happened to him.
The Challenge
Tom had been a conservative investor, choosing to place a large portion of their assets in non-qualified fixed annuities. These annuities had been growing tax-deferred for decades, benefiting from what I call “triple compounding”—where the principal earns interest, the interest earns interest, and even the taxes that would have been paid annually earn interest.
This strategy had worked exceptionally well for them. Over time, their initial $500,000 investment had grown to over $1 million. However, after Tom’s passing, Margaret was left as the sole owner of these annuities, suddenly responsible for making financial decisions she wasn’t prepared for.
Shortly after Tom’s passing, Margaret met with their financial advisor—someone she had never met before. He advised her to take a full withdrawal of the annuity contracts and reinvest the money into fee-based mutual funds, where he would earn an annual 1.5% management fee.
What Margaret didn’t realize was that taking a lump sum withdrawal meant she immediately triggered taxes on all the gains. This decision resulted in:
- Over $150,000 in taxes on the annuity assets alone.
- Additional taxes on her Social Security benefits.
- A substantial increase in her Medicare premiums.
If she had been aware of other options, she could have avoided this tax hit entirely.
The Solution
Had Margaret been properly advised, she could have:
- Withdrawn funds gradually, spreading out taxable gains over time to significantly reduce her tax burden.
- Annuitized the contracts, allowing her to receive payments over a set period—or even for life—while still minimizing her taxes.
- Implemented a proactive estate plan, ensuring that Tom’s wishes were clearly documented, so she didn’t have to make rushed, uninformed decisions while grieving.
The Results
This situation highlights two critical issues:
1. A lack of estate planning can lead to costly mistakes. Tom’s investment strategy had worked well for decades, but without a plan for Margaret’s next steps, much of their hard-earned savings was unnecessarily lost to taxes.
2. Both spouses need to be involved in financial planning. Margaret had little knowledge of their financial situation, leaving her vulnerable to poor advice.
This is an especially important conversation for women, as they are statistically more likely to outlive their spouses and face financial challenges alone. So many of the stories I share about estate planning involve women—because they are often the ones left to navigate these complexities after a partner’s passing.