Some years ago, my grandfather passed away. He and I were very close and he taught me quite a bit over the years. He was a planner, very organized (maybe even a bit OCD) and even in death, he taught me an invaluable lesson.
Anyone who has had to manage the affairs of a deceased or incapacitated friend or relative, or served as an executor or executrix, understands just how difficult and stressful it is to manage the affairs of another person. Getting your financial life in order includes making it easy for someone else to manage your affairs in the event of your incapacitation or death.
For most people, this is likely the “heavy lifting” portion of getting your financial life together. This will definitely require some staying power and regular maintenance. Broadly speaking, much of this exercise is preparing for the “worst.” More specifically, the purpose of this exercise is:
- To get all relevant information in an easily accessible place – or where important information may be found.
- To make it manageable for someone to easily take over your affairs in the event you are incapacitated or pass away.
- To avoid probate in the event of death.
- To outline your wishes.
It is surprising how many people I talk to that do not have their critical documents in order. If you are (simultaneously) young, unmarried, childless, and have no assets, you can skip most of this. If you are married and/or have children and any material assets to speak of, this is an important part of getting your finances together.
Locate Critical Documents
Find all your critical documents: birth/death/marriage certificates, divorce decrees/documents, social security cards, passports, military paperwork, business /partnership agreements, any legal documents you have in force (will, power of attorney, advance care directive, etc.) Collect original hard copies of all important documents for each family member and store them in one very safe place -- at least for now.
- Titles / deeds of ownership (e.g. real estate, vehicles, etc.)
- Birth / death certificate(s)
- Social Security card(s)
- Marriage license(s)
- Photocopy of driver’s license and any other government issued ID
- Citizenship paperwork
- Military service paperwork
Replace Missing Documents
If you don’t have a critical document (e.g. social security card, birth certificate, marriage certificate, etc.), start researching how to replace it and get the process going. Replacing these documents can take time.
Draft or Locate Your Legal Documents
Many people believe that they do not need a will (and other documents) because they don’t have assets of value. Wills (and trusts) are not simply for the wealthy. If you are married and/or have children, at a minimum you should have the following:
- Power(s) of attorney for health care
- Power(s) of attorney for finances
- Advance care directive / living will
- Letter of instruction to executor/guardian
Why? Consider the following scenario of John and Jane, an unmarried couple.
For all intents and purposes, this couple is “married” except on paper. Each is 30 years old, cohabitating in an owned condo held in John’s name. No children, one dog, 2 cars (both with outstanding loans in both of their names), Jane has $20,000 in a 401k account with no named beneficiary. Suppose further that John was unemployed for the last year and Jane paid the entire mortgage over this time and half the mortgage previously. Does this couple really need these legal documents? Absolutely.
Suppose John and Jane both die in a tragic circus accident. Who gets the condo? The cars? Their debts? Retirement money? The dog? While their “assets” may not have been sizeable, it may be very important to them how their assets should be divided. How do you close their Facebook accounts? Pay their bills? Check their email?
Now, suppose Jane survived, alive and well, but John was incapacitated. Without these documents, managing John’s affairs becomes extremely difficult. Even if it were John’s wish to have Jane manage his affairs, she is afforded no legal status without the documents above.
Even if you believe, “Hey, I’m dead. What do I care?” it may create problems for your relatives who may fight over what they believe they are entitled to. These problems magnify as you add more complexity -- marriage (and/or divorce) children, more assets, etc.
The good news is you don’t have to be a lawyer, or even hire a lawyer to craft these documents. All you need to do is answer some basic questions about yourself and be able to designate the people responsible for you and your family in the event you cannot manage your affairs. For many people “boilerplate” versions will suffice. You can purchase or find free templates online (like this one) or there is relatively inexpensive software (e.g. Quicken Willmaker) available.
Word of caution: Be very careful about whom you designate as your executor(s)/guardian(s) and to whom you grant power(s) of attorney. You must trust this person(s) with your life!
If any of the following documents apply, locate them and put them in your “box.”
- Divorce decree/annulment document(s)
- Any contracts, legal agreements in force
- Any account information, trust, etc. where you (and/or your spouse) are a named executor, custodian, trustee, beneficiary, co-owner
- Any relevant business documents for home or small business (e.g. partnership papers, articles of incorporation, etc.)
- Medical histories, lists of medications
- Letter of instruction/letter to loved ones
Build Out Your Excel List
Start putting together account and billing information in an Excel spreadsheet. Now add other important account information:
- Emergency contact list for your family and friends
- All financial account information (bank, brokerage, retirement, pension, life insurance, annuities, etc.)
- All property and casualty insurance information (home, auto, etc.)
- All account information for financial liabilities, loans (home, auto, personal lines, credit cards)
- Medical insurance, account information, HSA and/or FLEX account information
- Employer information (including contact information for
- Contact information for key service providers (doctors, lawyers, accountants, real estate agents, financial advisors/bankers, school (teachers, administrators, etc.)
- Personal “accounts” (e.g. email, social media sites, iTunes, loyalty programs, subscriptions)
This list is not exhaustive. Think of it as “anything you’d want shut down or managed in the event you were incapacitated or worse.” Include your online log ins/passwords for email accounts, social media sites, your home network (computer, wi-fi, etc.). You should also password protect this list. If you’re concerned about a breach of your computer, craft the list without critical information (account numbers, passwords, etc.), then hand write the important info. Keep a hard copy of your list with your other documents.
Clean Up Account Registrations
Non-retirement assets (e.g. houses, real estate, financial investments, etc.) can have different ownership registrations. To avoid probate, you can register your assets jointly -- use either “TOD: transfer on death” or “JTWROS: Joint Tenants with Rights of Survivorship.” Each registration confers different rights of ownership; make sure you determine which is right for your situation.
Monitor Beneficiary Information
Retirement accounts (401k, 403b, IRA, pensions, etc.) offer beneficiary options. Use them and make sure they are current. The point of have beneficiaries is to avoid probate. Your life circumstances change, so make sure you monitor and update your beneficiary status regularly (e.g. new child, divorce, etc.).
NOTE: for most people, cleaning up their account registrations and beneficiary options, plus a basic will and letter of instruction can keep your estate fairly straightforward and “clean.” For more advanced and complex situations, a living trust (or other types of trusts) may be suitable.
With all your critical information in the same place, there is definite risk. After all, this is your life in a box. Security is paramount. Some might argue that you should keep this in a safety deposit box. Maybe, but there is risk there too. Who has access? Is the bank open when you need it? Make sure your “trusted” people know where your information is. If you don’t trust electronic files/storage, use a hard copy under lock and key.
Maintenance is Key
Review your documents annually and update them to reflect current circumstances.
Some may consider this a bit extreme or even alarmist. This exercise comes with some ancillary benefits, like general preparedness. In the last two years, there have been substantial wildfires and flooding within a 50 miles radius of my residence. If you have ever wondered what you'd grab in the case of an emergency. Now you know -- you grab your “life in a box.”
Or consider an even more common event: divorce. Suppose you get divorced and you are not the family “CFO.” Having this information makes it easier to understand and manage the household under split expenses. Make the investment now, save time and money later.
Note: This post is a very cursory review, which borrows heavily from “Get it Together” (Cullen, Irving. Nolo). For those looking for more information and greater detail, I highly recommend purchasing this book.
This post was written by E.K Evans, CFA. If you’d like to submit a guest post, email us firstname.lastname@example.org.