When tragedy strikes in a family–in the form of a death or severe disability–people are overcome with emotional stress, be it grief, sorrow or the fear of how it will affect their lives.
It’s a time for focusing on family, paying respects and healing. But finances can quickly become an all-consuming concern. That’s why government officials reporting in FDIC Consumer News recommend planning ahead.
So what can a family do to prepare?
Save for the proverbial rainy day. Putting money aside for emergencies from every paycheck will add up quickly. Medical bills can also build up and you may not be able to earn what you are earning today.
It’s a best practice to set aside three to six months of living expenses to get through a difficult period without taking out a loan or borrowing from retirement savings.
Keep a list of accounts and secure all paperwork together. Ensure that the trusted family member responsible for your affairs has easy access to your bank accounts, investments, loans and other assets or money owed. This will save valuable time and headaches while avoiding risks and unnecessary expenses such as fees required to activate long-dormant accounts.
Other paper records your heirs may need to locate include wills, home titles, car titles, bonds and certificates of deposit. Of course, criminals might also enjoy this list, so store it securely, preferably in a place that only you and your designated family member can access.
Consider consolidating accounts. While portfolio diversity minimizes risk, the complexity of a portfolio makes managing assets more difficult. Combining multiple accounts could make it easier for family members to identify, monitor and manage those accounts on your behalf.
If you plan to consolidate your deposits at one institution, make sure the combined funds are within the FDIC’s deposit insurance coverage limits. Remember that you can have more than $250,000 in one bank and still be fully insured, provided the money is in different ownership categories — such as single accounts, joint accounts, retirement accounts, etc.
Consult with an attorney to draft or review important documents. You may want an advance directive to specify treatment options in case you are terminally ill or unable to make decisions. Additional legal documents include a will and/or a trust to shepherd the distribution of assets in case of death or a “power of attorney” to let others handle financial business if you can’t. Being caught without an estate plan may not just subject your heirs to higher taxes on your assets, it may tie the money up in probate court for many months.
Carefully evaluate vendors. A financial advisor may greatly benefit in planning for these events, such as in deciding whether to consolidate accounts or sell investments. Before choosing an advisor, one must understand what training he or she has had and any record of complaints.
The Financial Industry Regulatory Authority, a non-profit organization authorized by Congress, can help investors understand what the three-letter acronyms such as CFP mean after a financial professional’s name. The organization provides tips on investing.
Check to ensure you have adequate insurance. An insurance agent or a financial planner can advise individuals on whether they are adequately covered for life and disability insurance, weighing the pros and cons of long-term care insurance. An individual’s needs depend on factors such as dependents and any property you would like to pass to them that could serve as collateral for debt.
In general, the state pays all debts, and these payments will decrease the money available to heirs. But co-signed debt, as an example of an exception, shifts debt to the co-signer if the original signer dies.
Make it easier for heirs to access your assets after death. Confirm that the beneficiaries or co-owners you want on accounts are named in the appropriate records. For example, having joint accounts with a spouse or another loved one can make it easier for him or her to access the account when the asset holder becomes disabled or dies.
A joint account gives the person equal rights to the money in that account, so they must be trusted. Often, an asset holder will set up payable-on-death (POD) accounts at the bank to ensure that the people named will have access to the money after the owner dies, but it’s best to check with an attorney first.
Speak with your bank officer or an attorney about how a loved one or other designee can access your safe deposit box in the event of your death. Rules vary considerably by state.