Failure to prepare is preparing to fail
We prepare for many things in life-school, college, vacation, marriage, kids, grand-kids; the list is endless. But the majority of us ignore to prepare for the most inevitable, death. No one wants to think about it, but everyone needs to prepare for the possibility that they may suddenly die or otherwise become incapacitated someday. Along with the unbearable emotional loss, the ones you leave behind will also be subject to significant financial loss without proper financial planning, especially if you are the only breadwinner for the family. But taking a few important steps while you can makes it much easier for the loved ones you leave behind to manage in your absence. Here are a few tips to get started:
Start a Rainy Day Fund
Saving for a rainy day can help you and your family get through difficult times, especially if there’s a major health issue or a life event that may significantly impact your financial planning goals and source of income. As a rule of thumb, it is advised to save about six months’ worth of living expenses without having to borrow or take out a loan. “Having even a small amount of money automatically transferred on a regular basis into a federally insured savings account is a great way to gradually build a cushion to help manage unforeseen situations” said Mark Pearce, Director of the FDIC’s Division of Depositor and consumer Protection.
Create an Account List
Secure and share a list of your financial accounts and personal documents. Entrusting a loved one with the responsibility of your financial planning and documents is a vital step. Make a list of all your deposit accounts, investments, loans and other assets or obligations and let these be known to your loved ones to save them time and avoid risks of unnecessary dues and penalties on your accounts. It is also a good idea to make your heirs know where to find records of your wills, home titles, car titles, bonds and certificates of deposit. Keeping these lists secure is very important so you do not become a target for any criminal activity should they fall into the wrong hands. Making use of tools like InsuredMine will help you securely store all your insurance information under one roof.
Consolidate Your Accounts
Think about combining your multiple accounts (savings, checking, investment, and credit card) to make it easier for your loved ones to identify, monitor and manage on your behalf. When you consolidate, make sure the combined funds are within the FDIC’s deposit insurance coverage limits. You can have more than $250,000 in one bank and still be fully insured provided that the money is in different ownership categories-single accounts, joint accounts, retirement accounts etc.
Get Financial Planning Legal Advice
Get advised on how to create and/or update legal documents. Seek reliable professional help to prepare or update your legal documents that instruct your family or loved ones how to execute your wishes if you are too sick or otherwise unable to make decisions. Some of these documents include:
- Advance directive (a medical document that will specify your wishes for medical care if you are terminally ill and unable to make a decision),
- Will and/or a Trust (to guide the distribution of your property after your death)
- Power of attorney (authorizing someone else to handle transactions and make decisions on your behalf if you become incapacitated.)
Review Your Insurance Needs
Discuss with an insurance agent or a financial planner to determine whether you have adequate Life and disability insurance. Evaluate pros and cons of Long-Term Care Insurance (LTC or LTCI). Your insurance needs will depend on various factors such as whether you have any dependents and any property that you would like them to inherit, but is serving as collateral for a debt. Generally, all debts will be paid from the estate and this will decrease what your heirs could inherit. But sometimes there are exceptions. For example, after your death, the responsibility of your debt transfers to another person if he or she co-signed with you.
Make it Easy for your Heirs to Access your Valuables
With a few simple steps, you can make it easy for your heirs to access your valuables
- Confirm and record the names your beneficiaries on your accounts. Having joint accounts with your spouse or a loved one will make it easier for them to access the account if you become disabled or die, but you are giving this person equal rights to the money in that account.
- Set up payable-on-death (POD) accounts at a bank to ensure the people you name would have access to the money after your death.
- If you have a safe deposit box, check with a bank employee or an attorney about how your spouse or a loved one can access it. Procedures to access the safe vary considerably by state. Some state laws permit immediate access to a decedent’s entire safe deposit box contents by a co-owner, but some states only permit the removal of a will and burial instructions and wait for several weeks before they permit access to other valuables.
A little financial planning into the things we do often goes a long way. While it’s natural to fear what we can’t predict, this mystery should help us be prepared. After all, we only live ones; but if we live right, once is all we need! To learn more about preparing your finances for an unexpected life event, check out www.mymoney.gov.