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A FEW YEARS BACK, I found myself in the emergency room, thinking I had a serious condition. As I sat there, I worried about my family, including my wife and young children. If I didn’t come home, would my wife have a clear picture of our finances?
Fortunately, the health scare turned out to be a false alarm, but it was a wakeup call. Sure, I had an estate plan, but I realized that a binder full of legalese wasn’t enough. There’s a lot more we can do to organize our financial life so it’s easier on our heirs. Below are the organizational principles I recommend:
Financial map. If you’ve prepared an estate plan, that’s great. But don’t stop there. Put yourself in your family’s shoes. Would they know where to find the original, signed documents? Would they know how to contact your attorney and what steps to take first? I recommend drawing up a simple, one-page summary—what I call a financial map—that will tell your heirs where to find important documents, vendors and the other information that I describe below. You could distribute the map on paper or share it with a tool like Google Docs.
Contact list. These days, most people’s contacts are stored on their phones. But even if you could get into someone’s phone, it might not be much help. Instead, when someone dies, the most useful thing is a short list of key contacts. This should include your attorney, accountant, financial advisor and insurance agent. Immediately after someone has died, these are the most critical contacts. While less urgent, I would include other vendors, such as your cable TV provider, cellphone carrier and landlord or condo association. Here’s how to think about it: Suppose someone had to pay the most basic bills to keep your home running. Who are those vendors? All those names should go on your financial map.
Balance sheet. Your estate plan spells out who will inherit your assets, but it doesn’t say what those assets are or where they can be found. These days, many people hold assets at a mix of banks, brokers and workplace retirement plans. You may also have life insurance policies. On the liability side, you might have a mortgage and other loans. That’s why I would periodically print out a balance sheet and stow it alongside your estate planning documents. In your financial map, note where these documents can be found. If you write out even the simplest balance sheet, your heirs won’t have to spend time tracking everything down and they won’t have to worry that they’ve missed something.
Further commentary. In most cases, a simple balance sheet is sufficient. But if you have any unusual holdings—an annuity, a pension, employee stock options or stock in a private company or partnership—you should write up brief descriptions for each. This is a good opportunity to research details that would be particularly relevant to your heirs. Does your pension have a survivor benefit? Do your stock options vest upon death? It’s much easier for you to research these key provisions now than it would be for your heirs.
Assets under the radar. Do you have assets that would be hard to find—a safe deposit box, for example? I’ve seen more than one person hide cash around the house, stashing it in books and filing cabinets. Be sure to document any assets like this which may be under the radar. Better yet, purchase a small home safe and let your attorney know the combination.
Easily accessible funds. When someone dies, banks and brokers move quickly to freeze the deceased person’s assets. That’s why you want to be sure to hold at least some assets in a joint account with a spouse or other family member. Alternatively, or in addition, you could hold assets in a revocable trust that includes a co-trustee.
Letters. To complement their formal estate plan, many people write letters to provide further guidance to guardians, trustees or executors. These letters can articulate some of your more personal wishes—how you want your children raised or how you want your personal effects distributed. Suppose you own a summer home, an antique car or something else of unique value. In one of your letters, you could indicate how you’d like these special assets handled.
Passwords. In the old days, if you gathered folks’ mail for a month or two, you could get up to speed on their financial life and stay current with their bills. But today, so many bills arrive electronically that you really need to provide heirs with electronic access to your financial life. Otherwise, they’ll struggle to do even the simplest things like pay your electric bill. That’s why I recommend using a password manager. Then provide your master password to your spouse, if you’re married. Alternatively, you could store the master password in your safe, making a note of that on your financial map.
Subscriptions. In the past, I’ve recommended using one dedicated credit card for all subscription services—Netflix, newspaper, cellphone and so on. This has several benefits, including making it easy for someone else to see a consolidated list of the services you use. Paired with access to your password manager, this would make it far simpler for your heirs to log into your accounts and decide what to do with each.
Arrangements. If you’ve prepaid for a funeral or bought a plot, note this on your financial map.
Estate planning is, understandably, not the most enjoyable task, so don’t feel you need to tackle the above items all at once. I’d start by filling out your financial map and then go from there.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. In his series of free e-books, he advocates an evidence-based approach to personal finance. Follow Adam on Twitter @AdamMGrossman and check out his earlier articles.
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Good points indeed, but they are all hard to think about even while essential. I’ve been working on them all, but still struggle. We have a vacation home. Two of our children visit every year. Two others not so much. We want the house to stay in the family but recognize that may not be what the kids want as it’s 300 miles away from where they live. I asked them all if they wanted their share of the house? Two yeses and two I don’t know. Knowing they can’t now afford to maintain the house, we set aside $100,000 in the estate (adjusted for inflation each year) to be used for taxes, maintenance, etc. We also set forth in detail how the house would be divided should any one or more of the children decide they want the cash value instead. That way even one child can keep the vacation home and have the money to maintain it. My goal was to avoid hard feelings and fights.
Thanks for the useful article. Sadly, someone I know is currently dealing with this very issue. They are faced with trying to track down the tax records, bills and various legal documents of a deceased relative who left no written guidance. At a time when they should be free to grieve, they are, instead, spending their time bogged down in financial detective work.
My father-in-law (late 70s) had a major health scare this month. My mother-in-law is 80 and has severe memory issues—if something suddenly happened to him, she’d be hard-pressed even to call us, let alone manage the finances. My husband is a lawyer and their executor, but my FIL hasn’t walked him through the finances, other than pointing to an accordion file in his home office a couple years ago. This all became painfully apparent to us this month, as we contemplated the complications if he should die before we understand their finances. To top it all off, they live in LA County, which has been the terrifying epicenter of the pandemic these last couple months. We’re 400 miles away in Northern California.
He’s doing better now, but we’re just praying he holds steady until we can get vaccinated and down there to help sort things out. And we’ve become even more determined to make this easier for our own kids as we get older.
Having helped my mom deal with my father’s death many years ago, I became determined to make my passing as easy to deal with as possible. Not only have I worked hard to keep all my financial records simple and organized, I’m continually working on ‘purging’ physical items. Every year or so, I’ll go through the house and ask myself, “Have I used this recently?” or “Does this really mean anything to me?” If the answer is, “no”, then it either gets thrown away, donated or sold. I don’t want anyone to have to spend weeks of their own time sorting through a bunch of stuff that doesn’t matter to them.
Thanks Mr. Grossman. I’ve gone a tad overboard in also including in my instructions the recommended asset allocation for our investment accounts that my wife and/or our chosen trustees should consider if I go first.
I also know someone going through this. In addition to revocable trusts making sure bank accounts have a payable on death beneficiary is helpful. Otherwise the bank will tell you “get a lawyer” if you want to access funds.
I’ve found that the large banks are more reluctant to do this than the online banks. US Bank talked my mother into changing to a joint account with my sister when she tried to add POD beneficiaries. My sister can be trusted to follow our mother’s wishes but there are no doubt many families where that isn’t the case. This route can also be problematic because the IRS will consider the balance at death to be a gift to my sister which means we need to keep the balance below the tax free gift limit.
All very good points! If I may add something to it. I actually have such letter already, I call it “Contingency Plan for my family”. The very first item on it is the HR contact info of my employer and the steps to activate CORBA which would provide up to 18 months of health insurance upon the employee (my) death. My family would need to pay the entire premium (employer and employee part). But this would provide them continuous coverage, and give them time to shop for a longer term solution.
They have to pay 102% of the total premium. Much better deal to shop on an ACA exchange. They would still have continuous coverage and much more flexibility and likely lower cost.
It may be an option for some. But I’m not going to put my wife through the trouble of comparison shopping for health care and dealing with the ACA application process in the middle of funeral arrangements… This can just as well be done a couple months later.
I was going to be shopping the ACA this year when I retired. With the ACA before the Supreme Court this year, my CFP recommended going with COBRA, not knowing the outcome of their decision in regards to severability of the law. If the ACA is struck down that’s a whole new can of worms for someone that didn’t take COBRA while trying to find affordable health insurance
I spent 40+ years giving people this sort of advice and the author’s point are all good. If people would take even a fraction of these steps, their families and heirs would be much better off. A couple of suggestions, however:
1. Having a power of attorney and living will are vital documents, but even more important is who you give these powers to. If you have multiple kids, don’t name them all. Pick one, and pick the one who will make the best choices on your behalf, even if it means saying no to you. If you can afford professional asset management or a corporate trustee, give it serious thought and save your heirs the trouble.
2. Think long and hard before executing a DNR; you won’t get a second chance later and miracles can happen.
3. Don’t name someone to be your executor or power holder who is your same age or older. They will get old as fast as you will, and may not be able to do the job when needed.
4. Don’t assume that you will be mentally competent enough to handle your affairs as you grow older. You likely won’t and things could very messy if you haven’t made arrangements for others to take over your financial and personal affairs.
5. If your heirs are reasonably responsible, consider telling them in advance what your estate plans are and allow them to ask questions. Your heirs don’t get a vote in how you dispose of your assets, but it will save a lot of pain and argument later if they know in advance what you are planning.
6. Finally, end of life planning is not a one-time event. At least every 3-5 years, your plans should be thoroughly reviewed for any needed changes.
Putting all the streaming services and newspapers on one credit card is a good idea. I also have a separate “streaming services” Google Doc that’s linked to my master “money map” doc—all the log-ins and passwords. It’s come in very handy when we’re traveling (back when we did!) and want to remember the Netflix password or read one of the newspapers.