Imagine you just finished a lunch at a local restaurant. You pay the bill and are ready to head back to work. Just as you reach the sidewalk and are about to cross the street, your phone vibrates. Another work email. As you stare down at your phone, you lose balance and collapse to your knees. The left side of your chest tightens and your breathing becomes labored.
You just had an unexpected heart attack, and in an instant you have died.
Is your family prepared to handle the financial responsibilities and burdens that follow your death? Do they know how to access the crucial information to your will, trust, or even online bank account passwords?
The statistics are staggering. According to the Boston College Center for Wealth and Philanthropy, 70% of wealth transfers fail for any number of reasons. Most parents and grandparents wait too long to share their plan and, when they do share, they do not share enough information. This inability to share details regarding a financial plan could be due to a lack of preparation, ignorance of what information to share, or fear of how a child/grandchild may react.
Bringing the next generations, both children and grandchildren, into a well-prepared financial discussion will help your family cope with your passing without the burdens many face during this heartbreaking time.
The Worst Case Scenario
When there is a sudden death in the family, dealing with financial complications is the last thing anyone wants to think about. Failing to provide crucial financial information to your family can spell trouble at a time when your loved ones are most vulnerable.
It is essential that estate documents are up to date and readily accessible when needed. You have worked hard to provide for your family and take care of them upon your passing. It is not enough just to have a plan in place. You need to prepare your family with the tools to execute it in the worst case scenario.
The Death Folder
It is imperative that you maintain a death folder where your spouse or children can locate the information to keep things running smoothly when you pass. Your physical or virtual death folder should contain an array of important financial and life information including marriage certificates, deeds to your house, trust documents, bank account information, and passwords for signing on to pay the electric bill.
During this difficult time, life will continue on for your loved ones. They will continue to work, go to school, and deal with everyday financial matters. It is your responsibility to make sure this transition is as easy as possible.
Setting up a trust can help families achieve many different financial objectives. A trust is a relationship that exists when a trustee holds property for the benefit of others. When planning on passing assets along to the next generation most people think a will is all they need. While creating a will and regularly updating it is a good start; a trust is a more efficient legal instrument to accomplish this goal. For example, your family can bypass the probate process through the use of a revocable living trust. In creating a revocable living trust you retain control of the property transferred to the trust, but technically the trust owns the assets. This control allows you to continue to alter the terms of the trust during your lifetime, including changing trustees and beneficiaries.
With a trust, parents and grandparents have control from the grave. They can stipulate specifically how assets are to be used such as for education, medical expenses, or charitable donations. They can protect financially irresponsible children by instructing money be allocated at certain intervals such as every five years or a release of the money upon turning age 50. Additionally, a trust can protect the assets from the next generation’s creditors.
Introducing Your Financial Advisor
Communication is key. The more open the family is to communication with their financial advisor, the more prepared the next generation will be. Once your children reach maturity, bring them into the conversation and let them know where to look and what to ask your advisor upon death. The benefits go beyond preparation. This preparation will also show your children financial responsibility. Parents often think children receive their financial education in school but that’s not the case. In fact, 90 percent of students admit that whatever they know about money, they have learned from their parents.
For the next generation, it’s worth reaching out to your parents to make sure their affairs are in order. Try not to be pushy; the goal should be to initiate a conversation, have a positive role in the process, and when the time comes help with the necessary transition.
Discussing your own mortality can be uncomfortable. However, having these conversations with your financial advisor and children will ensure a seamless transition and a better future for those you care about most.