11 July 2009

Six steps to financially prepare for the unexpected

Amazon: Quicken WillMaker Plus 2011 [Download] Last weekend, there was a sudden death in my extended family. He was young, he was healthy, he was the father of two.

As I sit with my family marveling at how instantly life can change, I'm also watching one of my dearest relatives struggle with the financial realities of this terrible event. We always say we'll plan for the eventualities...we'll get the will together, we'll make sure the life insurance is up-to-date, we'll pay attention to where our money's going, we'll clean up the filing cabinet...but life tends to get in the way. The urgent pulls our attention away from the important. We get busy. Usually, it all works out.

But sometimes it doesn't.

My cousin's friend, a retired financial planner and stock broker, is helping her through this by tackling the unopened statements and unanswered questions and hopefully making sense of it all. In the process, we've been talking about simple preventative measures everyone should take to avoid such a mess themselves.

Share the responsibility for financial matters.

The simplest, most important thing you can do is to talk to each other about your money. If one person is responsible for the bill paying and record keeping (or the insurance levels, or the investment plans, etc.), imagine what would happen if that person suddenly went away?

Sit down together (possibly with a glass of wine) and talk about where you are financially and where you want to go. Each of you should have a sense of how much is in the various accounts, how much you pay for utilities, and how much you owe on your credit cards. If necessary, hire a financial planner to help you have these conversations. Things sometimes go more smoothly while sitting a nice office in the presence of a objective party.

Put recurring payments on autopay.

There is no reason to ever forget an insurance or mortgage payment. Set up automatic payment of those bills, either via direct withdrawal from your bank, or through autopay via your online banking system. Last resort: pay your bills automatically using your credit card. If cash flow is an issue (you're not sure if you have enough in your account every month to pay all of the bills), at least put your life, disability, and car insurance on autopay. The consequences of letting them lapse are dire.

Buy life insurance.

Everyone with a family needs life insurance. Term life insurance is CHEAP. Get some and put it on autopay. Your financial planner will help you with amounts. If the main breadwinner were to die, the surviving family would rest a lot easier knowing the house/the debt/college/whatever were paid off. If the person responsible for most of the child care were to die, the surviving family could pay for good-quality day care and (if necessary) housekeeping and gardening help. If breadwinning and child care are shared, life insurance makes sure that a death in the family doesn't also mean a massive shift in lifestyle.

Get a will.

Everyone needs one. Pay a lawyer or a paralegal a few hundred bucks to do it for you, or use software such as Nolo Press's Quicken Willmaker. Get it done now.

[Note: Until May 28, 2011, Willmaker is 71% off the regular price of $69.99. Quicken Willmaker Plus 2011, $19.99]

Co-sign on the safe deposit box so each spouse can access it.

If you've been putting off this 10-minute job, do it as soon as the bank opens. Consider putting a third trusted signer on the list in case you both die at the same time.

Consolidate your financial records.

Spend 15 minutes a day cleaning up your file system. Create a master list of contact and account numbers so anyone can have it all at their fingertips. The master list should contain:

  • Account numbers for all bank accounts, investment accounts, and retirement accounts.
  • Account numbers for all credit cards and loans.
  • Account numbers for all insurance policies.
  • Contact information for all financial and legal advisors.
  • Contact information for each person's workplace benefits department.
  • Social security numbers for everyone in the family.
  • Location of the safe deposit box.
  • Passwords, maiden names, mailing addresses and other secret keys to accessing information about these accounts on the phone or online.

Keep copies of this list in sealed envelopes in the safe deposit box, in a locked file, and with a trusted family member (ideally the executor of your will), and update it as details change. Be careful to keep this list accessible but secure -- it's a crib sheet for identity theft.

Update beneficiary information.

Whenever there is a birth or death in your family, update the beneficiary information on your accounts and investments. If you have a will or trust, check with your lawyer; in some cases, the primary or contingent beneficiary should be "estate."

Don't put off the conversation.

If there's anything this last week has shown me, it's that everything can change instantly. Set aside time this week to get started on these steps, whether with your spouse, your parents, or on your own.

By the way, we're talking about the death of a spouse, but this list works just as well for the loss of a job or any other sudden life change. It takes much less than a death to knock you off your rational feet for a while, and knowing the money matters are squared away removes an incredible amount of stress.

I know this stuff can be uncomfortable, but once it's done, it's done. You owe yourself and your family that peace of mind.

Have I missed anything? Any other financial housekeeping suggestions to offer?

Your comments

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excellent post asha! my partner and i are in the middle of this, as we're about to have a baby and realize the need to update our wills, etc., but you have several items on here that we hadn't thought about, and i'm adding them to the list right now.

i'm most impressed that you were able to put this together while dealing with a loss in your family. i'm sending warm thoughts over the net for you and yours.

So sorry for your family's loss, and you've provided some excellent advice.

Two things I would mention--be careful in listing your estate as the fall back beneficiary if you have minor children. I'm an estate planning attorney and I have seen more than one life insurance policy get tied up in Probate Court because a minor child was the only beneficiary left in the estate. There are ways to get around it, but it takes some planning.

Secondly--be sure to have a health care directive in case of a tragedy that doesn't result in death. Most state intestacy laws provide for your remaining family upon your death, but a lack of health care directive can more quickly become a nightmare.

This isn't strictly financial, but how about naming a guardian for your minor children? If something happens to both parents you want to be sure that there is a loving guardian waiting AND that they know how to access money to take care of your kids. My heart goes out to your family, thank you for the reminder that this stuff matters!

My beautiful, perfectly healthy, young husband almost died last year. I learned more than I wanted to about finances. I had taken care of the small things; he did the big picture. When he went down, I didn't have passwords; I actually couldn't find thousands and thousands of dollars from a recent sale of a house.

Some things I did: set up redundancy and transparency. Previously, I had been private about my finances. I was fortunate enough to have a financial planner in the family and we subsequently moved everything over to his firm and sacrificed our (perceived, hyper) privacy.

I also made a copy of all our passwords and info (life insurance, bank accounts etc) and gave them to my sister.

I contacted an attorney and set up a trust to avoid probate in the event of death.

We had a very honest conversation about what he wanted in case of another event. He was concerned I would put him in a "vent farm" (they're out there). He made my brother his medical decision maker because he felt like I would be too soft.

Here's what I tell everyone: If it's possible, talk to your HR and pay for your disability with AFTER TAX DOLLARS. You pay for disability with before tax dollars and you will be taxed on them come collection time. The difference between us maintaining most of our quality of life is due only to his completely random choice to pay for disability with AFTER TAX DOLLARS. If you can swing it or work out a deal with HR, do it.

At 19, my parents and I were in a horrific car accident which left both of my parents incapacitated in comas and myself having emergency surgery. My parents did not have an advance health care directive (DNR) nor did they have an estate plan, trust, will, etc.

TEN YEARS LATER, I am still fighting battles for my parents and I'm told by my lawyers this will continue for the rest of one parent's life. Only one of my parents survived, but with a terrible head injury that has left him incapacitated and unable to completely care for himself.

Trust me, it is worth a few thousand dollars to take care of business BEFORE tragedy strikes. My parents were the kind of people that thought nothing would ever happen to them and they did not have a plan in place. Well, something did happen and the last thing they EVER would have wanted was their only daughter fighting these battles for them. What if I had been a minor? Then what?

Let me tell you... people come out of the wood work trying to obtain money and control when something like this happens. From insurance companies, hospitals and doctors, lawyers, and sadly - family members, people must be prepared and have very "tight" legal documentation detailing what they want to have happen to EVERYTHING they own or are responsible for in the event of death, incapacitation, etc. Find a QUALIFIED LAWYER that SPECIALIZES in FAMILY ESTATE PLANNING and who feels they are qualified to construct a document to fit your needs. Put the ORIGINALS in a SAFE DEPOSIT box. Give yourself and a spouse access, but also give access to someone else whom you would trust with your most private, personal documents.

Make no mistake about it, a will or estate plan (trust - revocable or irrevocable) will come in handy at some point be it now or in the distant future. And yes, as long as it is not an irrevocable trust, you can make changes as the need arises.

As far as children go, EVERYONE should have a legal document detailing specifically what will happen to their children should something happen to BOTH parents (at the same time). You should have a specific Guardian named (be it a final Guardian or temporary) who can take responsibility for your children IMMEDIATELY. Then, if you need to change Guardians (say Aunt Susie is going to be Guardian while Grandma Rose flies across the globe to get to the children), state that clearly in your document. Also, what happens if the Guardian you named is no longer able to care for your children? Name an alternate or a few alternates. You can also allow for future children, etc. if needed while preparing your plan. This simple planning is CRUCIAL and should be REQUIRED for ALL PARENTS!!! (Think about what is happening with Michael Jackson's children?!)

In the end, material things do not really matter. It's just STUFF. Smart managing of your money will help take care of your loved one when you are gone, but isn't the key to a perfect scenario. Most importantly, line your ducks up. Make sure they are ALL IN A ROW, because you never know when your worst nightmare will come true and your family will be left to deal with your affairs.

Finally, this topic hits home for me - right in the chest, actually. It breaks my heart to hear stories similar to mine. Estate planning is probably the last thing on a young person's mind and even someone with a very young family. Sometimes those people are the ones who need it the most! Thank you very much for addressing this situation.

We had been talking about getting out wills together for years, but it wasn't until after we had children that we actually did it. There was a lot to think about - the main thing being who would we trust to raise our kids if we weren't there to do it. We listed a primary person as well as a backup.

The lawyer had several other documents prepared for us as well -
--Living will
--Powers of attorney for financial and medical decisions. My husband and I are the primary people on eachother's, but we also made sure to list backups in case something happened to both of us.

--Medical Power of Attorney for our kids - if they're staying with grandma for the weekend and get injured, she needs to have medical decision-making power. Copies of this go to each person listed as well as to the pediatrician.

So sorry for your loss, Asha. But thank you for putting this post together. So, so important.

As others have mentioned, a living will...very important to add to the list. Not only is it important so that the person affected can get the care, treatment, etc. that they want and need, but the healthy person can also have access to their bank accounts immediately, act on their behalf, etc. to keep the mortgage payments going, the hospital bills paid, and so on.

We've been putting off getting our wills done (as you said, life gets in the way). But this just put a fire under me to get it done ASAP.

What amazing and heartbreaking personal stories. Thank you SO much for sharing them. My cousin tells me that so many of her friends, watching her right now, are examining their own finances and records. This horrible situation has the potential to help a lot of people. Let's keep talking about this!

Asha,

Jim and I are so sorry. What a heartbreaking loss.

Thanks for caring about PHers enough to write this important reminder.

So sorry for your loss. Thank you for sharing your family's story with us. This is something I've been meaning to do from the day my son was born but you always think you're going to have more time... later.

Great post considering the unexpected mess many leave behind. Here's another tip: all computer passwords should be accessible to at least two people (perhaps the appointed successor trustee and/or a spouse or sibling IN ADVANCE.) I know that my husband, who is an exceptionally private person, has all his passwords written down inside a sealed envelope in his top desk drawer. (Apparently, I'm only allowed to find out about his second family in Belize AFTER he's expired!) As for me, I use the same password for all accounts across the board, just to make it easy on him should I go first. And he knows what this word is...the only secret is what the word means, which I won't tell him unless he allows me to peek inside his special sealed envelope.

I'd just second Mes on power of atty and living will. I became severely disabled and that forced us into thinking about this stuff... Nobody knows what's in store for them, and it can all change in the blink of an eye. It's seems like a pain but it's easier to see to these things when you're not under severe stress.

Very sorry for your loss. Something similar happened in my family back in 2007 and it was an incredibly difficult time. Thank goodness my brother-in-law was a planner and he'd done nearly everything you have on your list, or it would have been even more difficult.

If you *do* put some of those payments on autopay, it would probably be a good idea to put a list of payments that are debited automatically, from what accounts, on which day(s) of the month/year, and an approximate amount of the autopayments in the master list. If the person who manages all those payments is the one to pass away, it could be an unpleasant surprise to the remaining family members when those payments disappear from the bank account unexpectedly. If they are aware of the payments via information in the master list, they would be better able to make sure there's money there to cover them and prevent overdraft fees or late payment fees.

Also, utilities information might be good to list on the master list. Canceling some of the bills and changing contact information on other bills will be much easier during that difficult time if the information is consolidated and kept up-to-date. It's really easy to miss one of those accounts in the shuffle, especially if it is paid quarterly, like trash collection or water/sewer service.

Kathy: thank you for the wise advice about autopay and utilities payments.

Prudence: regarding your potential "relatives" in Belize, just look on the bright side: free lodging and playmates for your children!

Regarding "the blink of an eye:" wow. We all know it can happen. We've seen it happen to others. But experiencing it now...it defies reason. My brain keeps going over and over this person's absence, and it simply makes no sense.

As for writing this up during a time of loss: this is as helpful to me as it is to you. Whenever I'm here I feel so supported and appreciated...I should be thanking YOU.

Thanks for the time you put into organizing such a list. It is uncomfortable. I needed this reminder and I'm bookmarking the post for reference as I begin the process.

It's a tough conversation, but you've framed out a good backdrop for it.

Such a great post, Asha. Thank you again.

One thing I would like to underscore is the need for good insurance. Really talk to someone who knows the ins and outs of the policies and what they mean. And get disability and long-term care insurance as soon as you can and as much as you can afford. You never know when you'll become uninsurable, and you can be deemed uninsurable for very minor things. And if you rent, get renters insurance. We once watched a large apartment building burn to the ground and dozens of people lost everything.

The thing we've always struggled with is naming a guardian for our children. Our parents are too old, our siblings either are at the end of their parenting years or aren't interested in parenting at all. And our kids don't know the extended family very well. And what a strain it would be on one of my cousin's families to take in two more kids. This is the decision I worry about the most, and unlike insurance, you can't throw money at it.

You're so right! No one wants to think about this, but especially in an emergency or time of grief, having vital information up-to-date is crucial. I had some experience with this when my aunt and uncle both died in a plane crash.

That's one reason I created "Matters of Fact" (Things the Family Should Know), a family record keeper available at http://www.Habitudes.info, my family organizing website.

Matters of Fact keeps all of a family's vital information one place. Where to find the bills, investment lists, employee benefits, retirement accounts, insurance policies, physicians, safe deposit info, legal and financial advisors, bank accounts, credit cards, email accounts, info on wills, last wishes and Advance Directives and more.

And it's not just useful for an executor. We print ours and keep it in a safe place near the desk so we can look up household details quickly. (Like credit card customer service numbers, in case a wallet is stolen!)

Also, Matters of Fact serves as a checklist. For example, if you don't have it, the section for life insurance will remind you to get some!

One advantage of keeping this info online is that it's easy to update and accessible by both spouses from home, the office or anywhere there's internet access.

And because data is stored on special ultra secure servers, it's safeguarded from computer problems, theft, fire or natural disaster (think Katrina.)

Other important information to keep up-to-date is emergency contacts and instructions. Habitudes is currently featuring their Emergency Information list, and it's free this month.

Getting all of this together takes time, but it really feels good when it's done!

I actually saw this on another site, and thought that person was the one who suffered a loss. My apologies -- and my deep sympathies. The age of circumstances really make this so tragic.

I was going to echo the part about a guardian. We struggled with this -- and a friend really did. Her sister to this day thinks she is guardian for my friend, but really my friend's in-laws are. And my friend wrote a letter to her sister, in the unlikely event something DOES happen, explaining the reasoning. I've told this to a couple friends, who have really embraced this as a way to do what they think is best for their children, and still maintain family peace.

You have given me some tips, and I think I'm well organized! I have to update some things and put things in a central spot, and, most importantly, inform my husband. I do all this stuff, and he'd be somewhat lost for a while. I can make things easier.

And "Die$mart" by Kathy Lane (http://www.diesmart.com) is an excellent reference for planning for death and disability. There are legal forms, true-life stories about really serious financial mistakes people make (common ones, too) -- and how to plan ahead. It even integrates the use of the Internet for references and rules, such as when rules are specific to a certain state. And it even talks about who owns digital assets when someone dies, which I have to confess I had never considered.

Good luck and Godspeed to your relative.

Hmmm -- link doesn't seem to work.
Try: Die$mart Guide to Death and Dying -- http://www.diesmart.com

I believie in getting life insurance after seeing what my best friend went throuh. This company helped me with deciding what to do http://www.mwaquicklife.net/. I also put my paymemts on autopay. It's a great tip because there are many things which can interrupt your monthly routine, especially a prolonged illness. It helps to not make money athe focus at a bad time.

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