retirement

5 Financial Boxes You Should Check Before COVID-19 Strikes

You're doing everything you can to stay healthy for your family. Now go the extra step and take care of all the loose ends left hanging from your estate plan.

I’m not sure I’ve ever read, let alone written, a title so morbid. These are unprecedented times.

The unfortunate reality is that, according to the CDC, the fatality rate of this virus is over 10% for those 85+, but the virus can be deadly no matter what your age. These sobering statistics should be eye-opening, but the fact is, I meet with people all the time who, by spending just one hour today, could save their heirs many more hours, upon their passing.

Below are five items that will save your loved ones significant heartache, time and energy should you be one of the unfortunate few.

1. Make sure your legal documents are in order

There are certain legal documents that everyone over the age of 18 should have in place. Of course, I have yet to meet anyone who headed to their local estate attorney’s office after purchasing their first legal lottery ticket on their 18th birthday. More typical are couples getting a basic set of documents drawn up upon the birth of their first child.

A basic will package (details below) often includes a will as well as a durable power of attorney, a health care directive, and a living will. In the current environment, those pieces are much more important than the will itself. If you’re incapacitated, who will pay your bills and sign on your behalf? Who will make health care decisions for you? If you become terminally ill, do you want to go on life support? An estate attorney can draft these documents for a small fee, or you can try your luck with services like LegalZoom.

2. Create and document an inventory of your assets, liabilities and insurance policies

If the above title weren’t already too long, I would have added “and tell someone where they are.” I’ll never forget when my parents visited the Grand Canyon for the first time and my dad brought me into his home office to show me where all the estate and financial documents were stored. They were going to be riding donkeys down into the canyon, which got him thinking about covering his bases just in case. This was an uncomfortable experience for a 20-year-old. That said, it was the right thing for him to do.

A better practice, or perhaps an additional step, is to store the inventory digitally. What if my parents’ house caught fire? If you use a financial planner, that individual or firm should have access to software that keeps a live net worth statement. All of our clients’ next of kin know how to get in touch with us, in the worst-case scenario. If you do not want to involve a professional, platforms like Personal Capital will allow you to aggregate all your accounts in one place. Just make sure you’re not the only one who knows where the password is.

3. Review your beneficiaries

If today were your last day, would the people, places and causes you care most about be left with a check — or with a mess? That’s a simple question that most people can’t answer. First, you need to have a conversation with your family about who you want the money to go to. Secrets are no fun, and they will leave a mess for everyone. Once you’ve identified the recipients, make sure your beneficiaries, the trust (if applicable), and the will, dictate that. I listed them in that order because that is typically the order of importance. If you have a beneficiary listed on your account, what your will or trust says does not matter. The beneficiary designation will supersede them.

Typically, retirement accounts, annuities and life insurance contracts will have beneficiaries. Bank accounts, taxable investment accounts and property usually do not, outside of joint ownership. A best practice is to review these annually. We have a form we use to go through beneficiaries once per year in reviews with our clients to make sure they are still aligned with goals. Pro tip: Take your ex-spouse off your old employer’s life insurance policy.

If you would like to add beneficiaries to bank accounts or investment accounts, this is a simple step, done with a short form, that will help your heirs avoid probate. For bank accounts, this is called Pay on Death or POD. For investment accounts, this is called Transfer on Death or TOD. Certain states will also allow you to add a TOD to your home.

4. Make sure your will is up to date

Parents of minor children, I’m looking at you. It is woefully irresponsible to die without a will if your children are under 18. It means that you don’t get to decide who will become their guardian.

We often think of the will as the document that dictates who gets what, and to an extent it does. However, it is often a backstop for anything that doesn’t have a beneficiary designation. Therefore, the will often says who gets your home and your bank accounts, not your retirement nest egg.

As a rule of thumb, you should update your will every five years or when your situation changes. In addition to naming a guardian for your minor children and serving as the backstop for distribution of assets, the will names an executor/executrix/personal representative. That person will lead the charge in the estate distribution process.

5. Make sure your whole family knows your financial team

Because of the demographic of our clientele (55+), we have to plan for a handful of our clients to pass every year. The financial settlement and distribution process is much smoother if we already have a relationship with the next of kin. Forging that relationship is something we insist upon at the outset of every relationship, but every so often, we get pushback. We recommend keeping a list, typically in the same place as the passwords, of the professionals you work with and their contact information. In the months following a death, the executor will have to work with insurance, financial and legal firms. It’s best if everyone knows each other beforehand.

One of the reasons this strange, new world is so scary is because so many things are out of our control. Consider this: Say a man and his girlfriend live in New York, and she has tested positive for COVID-19. The man went shopping and was reading a nutrition label on a box of cereal but decided to put it back. An hour later you bought that same box. So now maybe you’re at risk.

I’ve found comfort in controlling what I can: Washing my hands until they feel like sandpaper, avoiding touching my face, and … triple-checking my beneficiary designations.

Campbell Wealth Management does not provide tax or legal advice. We will work with your independent tax/legal advisor to help create a plan tailored to your specific needs.

About the Author

Evan T. Beach, CFP®, AWMA®

Wealth Manager, Campbell Wealth Management

Evan Beach is a Certified Financial Planner™ professional and an Accredited Wealth Management Adviser. His knowledge is concentrated on the issues that arise in retirement and how to plan for them. Beach teaches retirement planning courses at several local universities and continuing education courses to CPAs. He has been quoted in and published by Yahoo Finance, CNBC, Credit.com, Fox Business, Bloomberg, and U.S. News and World Report, among others.

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