Every year about this time, as a favor to my wife and family, I imagine myself dead.
I don’t do this to be ghoulish or to make myself feel appreciated while I’m still alive. I do it because we have a division of labor in our family. And it’s been my job to handle investments, file tax returns, pay bills and keep the financial records. So once a year, I send a letter to my wife (and a copy to my daughter and brother) explaining how I do those chores and where vital records can be found— just in case one day I’m suddenly not around to take care of things myself.
— Jonathan Kern, Page G5
Of course, a death doesn’t have to be sudden to create financial problems, even if you think you’re prepared.
Whenmy father died in July, my brother and I had already taken over nearly all his finances. We knew about his stocks, bonds and bank accounts. We paid all his utilities and even wrote checks to the fellow who mowed his lawn and the couple who cleaned his house. Most important, we knew where his will was.
But there was a lotweneeded to know that is never mentioned in a will. For example, we had no idea whatlife insurance policies hehad or who the beneficiaries were. We didn’t have the deed to his house. And while there was no federal estate tax in 2010, the IRS doesn’t let beneficiaries off the hook entirely: We will still need to file a form to show how much my father’s assets increased in value since they were acquired.
To uncover that information, we had to sift through six file cabinets crammed with 50 years’ worth ofmy dad’s papers, looking for any record of the purchase price of his house, the cost of improvements made over the years and what he paid for stocks in the 1970s.
So if, like me, you tend to be the main accountant in your household, take a few minutes to put in writing anything your family would need to know about money and investments if you were not there to tell them.
Start with the easy stuff. Write down where you keep your will or trust and whether the lawyer who drafted it maintains a copy, along with his or her name and address. That’s probably the first piece of paper everyone will look for.
List all the bills you pay each month and whether you pay them by check, online or have them deducted automatically from your bank account. If bills are sent only to your e-mail address, say so; people willneedto look there until they can have the bills e-mailed elsewhere.
The same goes with your home loan, if you have one. Your family will need to know how to keep up the payments and whether you have been paying property tax directly or it is collected with your mortgage payment.
Where do you keep important papers, such as the deed to your house and the title to your car? If you have a safe deposit box, let people know where it is located— and where you keep the key! (It’s a good idea to have your spouse or another family member be the coowner of the safe deposit box, so he or she can have immediate access to it.)
If you can point family members to other important papers — bills showing improvements you’ve made to your property, for example, or old tax returns — you’ll save them a huge amount of time and trouble in the future. Remember, the IRS has three years to audit a return, and it’s always possible you won’t be here to explain that deduction for home office furniture you took two years ago.
Then make a list of all of your family’s investments – bank and brokerage accounts, CDs, 401(k)s, IRAs, everything. Include where you keep statements for each so that family members can easily find the account numbers and balances.
If you have life insurance, write down the name of the company it is with, where the policy (and policy number) can be found and its value. After all, your heirs can’t collect on a policy if no one knows it exists. If the beneficiaries aren’t the obvious ones — my father named his grandson as the beneficiary rather than his own children — this is a good place to identify them. And provide as much information as possible about other insurance you have — auto and home policies, health insurance, even service contracts for major appliances.
Finally, if you’re the only one who knows the passwords to your online accounts — the ones for your banks, or brokerage, or utilities— let people know where they can find them.
You don’t need to include the actual passwords on the letter; you can just point in the right direction. You can even do so cryptically to protect against the passwords falling into the wrong hands — for instance, “The passwords are in the piece of furniture that Jacob broke his tooth on when he was a baby.” Then follow up to ensure your family knows whatyou’re talking about. Ifyou’re really concerned about privacy, there are programs available that will encrypt your passwords so you can safely store them on your computer.
When you’re all done, hand a copy of the letter to your spouse and, as a precaution, to another trustworthy family member. Once a year, look it over to see whether anything has changed.
With any luck, you’ll need to update it dozens of times.