No one likes to think about a serious health scare or death, but creating a complete financial record can be an essential tool that helps family members navigate through a difficult time.
A family financial record is a compilation of important documents and accounts, ranging from retirement and investment accounts to insurance and beneficiary information to passwords. It is a single resource that consolidates key information and contains your instructions and personal wishes. Without careful planning, these records may be scattered throughout paper files and online accounts that your loved ones may have difficulty accessing or even locating.
Taking the time to organize and outline your financial life can help alleviate stress, minimize expenses and even reduce conflict in the event of your passing.
“We call this the love letter. Providing this information for those who are left behind is one of the most loving things you can do,” says Gretchen Cliburn, senior managing advisor at Springfield, Missouri-based BKD Wealth Advisors. Here’s how you can create your own family financial record.
Start with a net worth statement. The first step is to make a list of everything you own and anything you owe. Include all checking, savings, investment and retirement accounts, then note who has ownership of each account and list the beneficiaries. Other items to include in the net worth statement are property owned, business entities, mortgages, credit cards and student loans.
If you include only one document in your financial plan, the net worth statement is the most helpful because it “tells survivors a lot of information if they have nothing else, and is a way to help them start figuring out where everything is,” Cliburn says.
Tell your family where to find this information. Specify whether you’ve stored it in a physical file or electronically, and remember to include a password if the latter. “If you don’t have a place where the responsible person can go to get their hands on this data, it can be a nightmare and can cause a lot of unnecessary stress,” says Mike Piershale, president of Crystal Lake, Illinois-based Piershale Financial Group.
Create a list of important contacts and vital information. Let your loved ones know who they can communicate with when sorting out your affairs. List the numbers of your accountant, financial advisor and attorney, for example. Also create a record of your personal information, including Social Security number, birthdate, military service benefits and veteran’s life insurance.
Include a copy of all important documents. This includes estate planning documents, such as a will, trust, durable power of attorney, health care directive and a living will. Also make sure to list insurance policies, noting ownership, beneficiaries and the face amount or cash value. Don’t forget to include employment insurance benefits.
Keep a record of ongoing services. Make note of any contracts, subscriptions or automatic services you receive, from lawn care companies, cable television, newspaper delivery or any other providers. This can allow the easy cancellation of contracts and services if needed.
Don’t forget about your digital world. This is a newer concept, but with more and more of people’s lives going online, it is increasingly important to consider. Make a list of your digital accounts and how to access them. List all digital financial, insurance, online banking and email accounts, as well as Facebook and other social media sites with usernames and passwords.
“Some people are starting to name a digital executor, who has the authority to contact social media or photo storage companies to close out accounts,” Cliburn says.
Google created a service called Inactive Account Manager to help people manage their digital afterlife. The feature is available on your Google account settings page, and you can direct what should happen to your email messages and other accounts if you become inactive after three, six or 12 months.
Don’t be afraid to toss certain documents. No need to save everything. Too many documents can overwhelm family members trying to piece together your financial records.
“We had a client come in with piles of statements, confirms and canceled checks going back to the 1980s. It makes it really hard for the kids or heirs to find and locate what’s important if they leave piles of stuff they don’t need,” Piershale says.
So go ahead and toss trade confirmations and even monthly investment statements. Just save your year-end summary, Piershale says. Generally, the three-year rule applies to keeping tax returns, he adds.
Store and update. Find a safe place to keep this information, especially since the package contains personal information like passwords and your Social Security number. It can be as simple as using a three-ring binder or saving the data on a thumb drive — both stored in your safe deposit box. It’s a good idea to update the information on a quarterly or annual basis to account for changes.
Start the conversation. As difficult as it may be, you are never too young to start this process.
“This is one of the hardest things for people to take the time to do,” Cliburn says. “But it does save a tremendous amount of time and frustration when loved ones should just be dealing with their grief but instead have to track down all this information.”
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Why You Need a Family Financial Record originally appeared on usnews.com
