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People who live in Tornado Alley or hurricane country know that they need to be prepared to seek shelter in the case of a severe weather emergency. Part of this preparedness involves packing a “go-bag” with important hard-to-replace personal items and documents.
You should have a similar go-bag or emergency kit packed and ready to go in case you and/or your partner pass suddenly or become too ill/incapacitated to manage your financial affairs. Couples should also choose a friend, relative, or another trusted representative to manage their affairs in case of an emergency. This blog focuses on couples, but people who are single should also choose and share financial information with someone who can step in and manage their financial affairs in the event of death or incapacitation.
This is especially important when it comes to financial matters, whether you handle financial management yourself or work with a financial advisor. Yet, while preparing a financial go-bag intuitively makes sense, you would be surprised how many people do not do so. Part of this is psychological. After all, no one wants to think about the worst happening.
Another roadblock is the division of labor many couples have when it comes to their financial lives. There is a tendency for one person (Partner A) to manage the finances almost exclusively, either by prior agreement or force of habit. In my experience as a financial advisor, at least half the time, one partner does not participate at all in financial planning. It is not a stretch to consider whether this lack of interest or involvement extends to all or most of the couple’s finances.
What Is At Stake
This lopsided approach to financial management can be dangerous. Let’s say Partner A knows everything about the couple’s finances, including passwords for bank and brokerage accounts, retirement plan balances, outstanding loans and bills, the location of important documents, the details of life and disability insurance policies, and so on. If Partner B has not participated in discussions about financial matters, they are likely to have little or no knowledge of the couple’s financial situation or how to manage it if something should happen to Partner A. For that reason, it is important for both partners to be involved in deciding how to manage finances within the relationship.
Without this type of planning, the potential for financial confusion can add exponentially to an already stressful situation. If your partner or trusted representatives do not know the details of your financial life, the result could be unpaid bills, overlooked assets, and general administrative headaches.
Most importantly, your partner could end up with interrupted cash flow at a time when expenses could be spiking. If your partner or trusted representatives do not know what accounts are available to withdraw cash from or what level of cash flow is sustainable, a cash flow crunch is all but inevitable.
Getting Ready
The best way to avoid this situation is to make sure your partner or trusted representatives know the basics of your finances. This includes the location of important documents (such as wills and advanced directives), where and how your money is invested, and who your partner can rely on for help in managing their money when you are gone.
If you work with a financial advisor, your partner should at least know the firm’s name and the name and phone number of your key contact at the firm. Even better, make sure your partner meets with your advisor and attends at least a meeting or two to understand the basics of your finances. This is a time when having a strong relationship with a financial advisor can really pay off by easing the burden on the surviving partner.
By the way, sharing financial information is even more important if you and your partner maintain separate finances. Inevitably, couples have insurance policies, joint expenses and other financial details that both should understand and be able to manage if necessary.
Not Difficult But Important
Making sure you and your partner organize and share financial information is not a difficult process but it is a critically important one. The good news is that you do not have to do this alone. When you and your partner work with a financial advisor, this process can become much easier for all involved.
Packing Your Financial Go-Bag
- Write a will, especially if you have minor children, so that you can name the person who will care for them and ensure that your assets are distributed to whom you choose, how and when you choose. You can also write and attach a separate letter with any funeral instructions or wishes.
- Establish and/or update your revocable living trust. A financial advisor or estate attorney can help you decide whether this is appropriate for your situation.
- Prepare documents for durable power of attorney that is either effective immediately or effective only upon incapacity (known as springing power of attorney).
- Establish a healthcare power of attorney and organize a living will.
- Name beneficiaries for all accounts.
- List your assets, including real estate and all bank, brokerage and retirement accounts.
- List debts, including active credit cards, mortgages, lines of credit and other loans.
- Provide a list of passwords, automatic debits and contact information associated with all of your accounts.
- Gather all important personal documents (Social Security card, birth and marriage certificates, titles and property deeds, and insurance policy documents, including those for health, long-term care, life and disability coverage) and make sure your partner or trusted representative knows where to find them.
- Have a conversation to make sure your partner and trusted representatives understand everything on this list.
If you have any questions please reach out to your Blue Chip advisor for guidance. We are here to help.
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