While the death of a long-term spouse may be enough of an emotional challenge, many "wealthy" widows discover that they must confront underdeveloped financial plans that leave them feeling unsure and insecure. Widowhood also requires a different approach to navigate a path to financial stability that will support emotional recovery. The lack of advanced planning by high-net-worth (HNW) couples contributes to this tumultuous state in which widows find themselves.

With recent widows, the biggest obstacle to solutions is the state of mind. They are not only trying to settle the estate, but they're trying to get their own financial independence up and running — and confronting survivorship issues at the same time. They face a lot of paperwork for many different kinds of transactions in a relatively short amount of time.

"The technical solutions like figuring out the estate planning, the taxes, the investments, the cash flow — that's usually the easier part," notes Jan Geiger, CFP, MBA of LongView Wealth Management in Atlanta, Ga. "It's the psychological part that's usually hard. My experience after 20 years has been about 20 percent of the decision-making is logical and 80 percent is emotional."

Especially with widows who are older and coming from a marriage with many assets, advisors have noted how many weren't involved with financial management to any degree. One of the key issues is providing guidance "before somebody at the bank has sold them an annuity," observes Geiger.

The Widow As Prey

Late last year, a woman in Virginia who had only been a widow for a few months received a call from her accountant who had started working on her tax returns.

"There's just something funny about your Schedule D," said the accountant. "There are lots and lots of transactions here." It turned out that when her husband died, the widow told his broker at a major wire-house to just go ahead and do what he's always done for her husband because she really didn't understand investments.

The first thing this broker did was flip her to the highest commission schedule that the wire-house allowed. Then, he started churning her account. As a 70-year-old widow, she ended up owning a significant amount of Nevada gaming stocks, which the broker's firm happened to bring to market on its investment banking side. Of course, the portfolio was totally unsuitable for her situation.

The accountant sent her to Helen Modly, CFP, CHFC, vice president and director of investment services for Focus Wealth Management, a fee-only investment advisory firm in Middleburg, Va. Modly did some of the cash-flow planning and figured out how to make best use of the husband's retirement plans and restructure the client's portfolio.

"Widows are in a position of trauma," observes Modly. "They tend to just go along with whomever is being nice to them."

Paralyzed by Paperwork

Not surprisingly, widows as a group, exhibit the range of dysfunction from super hoarder to super frugal, independent of the actual assets at their disposal. For some, even having a $10 million or $15 million net-worth doesn't get them beyond the fear that they might end up homeless living on the street, notes Geiger. They're also scared someone will take advantage of them and walk off with their money.

At the other end, Geiger has encountered widows who've blown through $2 million in two years — a pace that will leave them with very little after five or six years.

For many widows in the early stages of their new status, Geiger often finds an emotional state of paralysis where they're unable to focus on the decisions facing them. She visits such overwhelmed clients in their homes and goes through all the paperwork just to help them get organized, especially when they've never handled the family finances. She tells them just to sit nearby, keep her company and answer some questions. Typically, the paperwork covers the dining-room table.

Challenge of Illiquidity

Although their balance sheet may show significant assets, the lack of liquidity can be the first financial surprise. For example, if a couple owned parts of a few businesses and maybe some investment real estate such as a shopping center, and undeveloped land, they don't guarantee adequate cash flow to maintain the lifestyle the couple did have. In a marriage where the husband's substantial annual income maintained the family's three homes and multiple luxury cars, the sudden lack of that income radically changes the cash-flow picture for the surviving spouse and family.

During strong real estate markets, an owner could sell a land parcel to pay taxes or improve cash flow. In many parts of the country today, however, selling property or a home is a challenge. "To try to explain to somebody who has all of these assets that they really need to downsize or sell off some of the lands or allow some development is a really tough conversation," Modly adds.

Even with affluent families, advisors are seeing many cases in which the amounts of life insurance are inadequate to replace the lost income after the death of the main breadwinner, as a recent case of Modly's indicates. The husband had owned a profitable closely-held business, but he had been careless about maintaining stock certificates. At the time of his death, the widow assumed that all of them had been jointly titled. As it turned out, the stock was in his name and some of it had been pledged. Modly's firm spent considerable time just discovering who owned what.

Some of the assets were held in New Jersey and subject to its estate tax. Besides the business interests, the widow became the owner of a substantial amount of property including a 10,000-square-foot home the couple had just finished building three months before the husband's death. She's reluctant to sell the house, yet she has insufficient proceeds from life insurance and other sources of cash to maintain her previous lifestyle. On her own, she earns less than $50,000 annually.

"It is amazing that you can have that much net worth and still be broke — just because it's not liquid," Modly says.

Lewis Schiff is the principal of Advanced Planning Group, a family office network for advisors. His latest book, The Middle-Class Millionaire was published in January 2008. View complete details on how to receive a free report on The Highly Effective Habits of Successful Advisors by the authors of The Middle-Class-Millionaire.