Last week’s events reminded me how fragile life can be and how quickly it can turn topsy turvy when a loved one dies. As Benjamin Franklin so accurately noted, “In this world nothing can be said to be certain, except death and taxes.” And I can say from both a personal and professional perspective, death still flattens us, whether it comes as a shock or not.
Too often I receive phone calls from someone who has recently lost a spouse or parent and desperately needs help figuring out their finances. The problem? The surviving family member is clueless about the financial situation and bills need to be paid. They want the space to grieve for their loved one, but now they are panicking because they don’t know what to do. It’s a scary place to be in and one that is avoidable with a little planning.
7 Steps to Put Your Finances In Order
I’ve always been an advocate of financial transparency in a marriage, which includes being prepared for when one of you dies. Note that I didn’t say a premature death either. As Mr. Franklin stated, death is a certainty, and it’s a courtesy to make sure the surviving spouse or your children know exactly who to call and where to go for help.
Step 1: Review All Financial Accounts
Go through every single financial account you share jointly and individually. Where it makes sense, you may also want to consider consolidating and merging some accounts to simplify matters. I also suggest creating one list with all the relevant information. Store this in a secure place where both of you have access (see step 4).
If you do not have life insurance, this is the time to figure out how much you need and get some quotes. Learn more on how life insurance creates a strong financial foundation for you and your family.
Review and Update Beneficiaries
As you review your financial accounts, make sure your beneficiaries are updated and correct. Many times people forget who they put as their beneficiary, especially if an account is old or created prior to your marriage. You don’t want your money to go to the wrong person. Please note: beneficiary designations override wills. So be sure they are accurate.
Step 2: Review Debt
Now it’s time to review your debt. It surprises me how often one spouse is in the dark about the family debt. Go through any outstanding debt you have from mortgage, student loans, car payments and credit cards. Death does not mean debt is necessarily forgiven and it can be complicated to sort through. Being clear on what debt you have (jointly and individually) will make it easier for your survivors to notify lenders as they figure out which debts need to paid with your estate.
Bonus Tip: If one spouse owns a separate business, this is a good time to go through the business books and create a contingency plan. Your clients and employees depend on you and deserve to be taken care of too.
Step 3: Review Bills
Generally speaking, one person may handle paying the bills. Hopefully the other spouse isn’t oblivious to the bills, but they probably could use a refresher course at to what the monthly/yearly bills are. Again, you might want to consider a list with all the various bills and due dates. Update this yearly and store in a secure place.
Step 4: Review Important Documents
Throughout the years, you collect a ton of documents. Some that need to be kept forever and others that don’t. They tend to get scattered all over the place, so now is a good time to get organized. File documents you need to keep and shred those you don’t. Be sure to do this together, so you both know where the important papers, such as birth and marriage certificates, social security cards, vehicle titles, mortgage paperwork, etc. are kept.
Create a Master Contact List
It’s easy to get overwhelmed after the loss of a loved one, which is why I recommend creating one master list of the people and organizations who need to be notified now. The list should include a contact person, phone number and account number, if applicable, for the following:
- Executor of Estate
- Financial advisor
- Employer (I would have contact information for both your immediate supervisor and human resources)
- Social Security Administration
- Life Insurance Companies
Your list may include additional people, but this is a good start. Review the list yearly to add and update contact information as needed.
Store Important Documents Securely
I recommend keeping important and valuable documents in a fire proof safe or filing cabinet with a lock. Make sure both of you know the combination and how everything is filed. You may also want to consider keeping a duplicate copy in safety deposit box at your bank.
Step 5: Create/Update Your Will
If you don’t already have a will, now is the time to create one. Your will should clearly reflect your wishes regarding the following:
- Name beneficiaries (family, friends and/or organizations) to inherit your property
- Designate a guardian to care for your minor children
- Cancel debts owed to you
- Outline how debts and taxes shall be paid
- Name an executor of your will
- Name a caretaker for your pet, if applicable
Be sure to review it yearly and make changes as needed.
Parents with Minor Children Need to Have a Will
Last Wills and Testaments seem so final and young parents often believe they are something their parents need, not themselves. While your parents should have one, so should you. You want to be the one to choose who will care for your kids if you and your spouse are no longer able to do so, rather than have the government decide for you. Identify your guardians and confirm with them first that they are willing to take step in your absence. While they will hopefully never need to do so, you want to be sure they are prepared to become full-time parents to your children if necessary.
Step 6: Designate a Durable Financial Power of Attorney
A financial power of attorney is someone who has the authority to handle financial transactions if you become incapacitated. This highly trusted individual that you select has authority over your finances, although you determine how broad their powers are. Some tasks they may handle for you include, but are not limited to, the following:
- Pay your bills with your assets
- Collect and deposit your Social Security and other government benefits
- Invest your money in appropriate financial products
- File and pay your taxes
- Manage your retirement accounts
It’s easy to set-up a durable financial power of attorney but there are, as always, lots of little nuances to consider, especially when it comes to selecting the right person to entrust with this important responsibility. You can find more information on durable financial power of attorney, here.
Step 7: Create/Update Your Living Will
We all heard stories about family members bitterly fighting over the medical care of an incapacitated loved one. To avoid this, you need to create an advanced-care directive or living will where you outline the medical care you would and would not want to be used to keep you alive. This relieves your loved ones from making tough decisions on your behalf and reduces arguments over your end-of-life care.
Select someone you trust explicably to be your medical power of attorney and make medical decisions around your treatment when you are no longer able to do so due to illness or injury. Please note this is separate from a Power of Attorney. You could choose the same person to be both, but it still requires separate paperwork. You can find more information on living wills, here.
Peace of Mind
We don’t know when our time on this earth will end, but we do that it will end eventually. Getting your affairs in order now will make things easier during an emotionally tough time for your loved ones. I strongly encourage you to give them that gift and yourself the peace of mind that your family will be okay.
I also know that it’s easy (or relatively so) to put our own affairs in order, but there is another generation to consider. For once I’m not speaking about your children, but your parents. On Wednesday, I’m share some tips on how to help your parents puts their affairs in order.
The Heavy Purse Store is now open! My new downloadable Money Club Workbooks are now on sale. Each workbook provides five targeted lessons to help you raise Financially Confident Kids. Please check them out in The Heavy Purse Store.
Photo courtesy via Markus Grossalber via flickr.