This is the second post in a two-post series on estate planning. In the first post I nearly covered the entire topic by cheating: I reviewed Plan Your Estate by Denis Clifford (Nolo, 2008). In this post I cover an important problem not addressed by Clifford: How would your survivors know where your assets are held, why they’re organized as they are, and how to handle them? This is a topic about which I’ve given a great deal of thought, as have others (for instance, on the blogs Bible Money Maters and Gather Little by Little). Below I describe my approach, some of which is of my own creation (though, no doubt, contemplated by others too). Some details were suggested to me by contributors to the Bogleheads Investment Forum.
For several years I’ve maintained a financial information list of every account or institution that has anything to do with my household’s finances. There is an entry in the list for all financial benefits associated with my employment (including retirement accounts and pension benefits), our attorneys (real estate and estate planning), all credit cards, utilities (phone, internet, water, gas, and electric), loans (mortgage and auto), all types of insurance, bank and investment accounts, and anything else that has to do with money.
Each entry in the financial information list includes details so my survivors can easily learn more about the institution or investment: institution name, account numbers, phone number, and web site. I also indicate how the organization communicates with me (whether by mail with paper statements or electronically). If the account draws on or deposits into some other account I also indicate the amount (or approximation thereof) and frequency of the transactions. For accounts with online access I list my user ID, but not my password (that’s the only bit of information I communicate only verbally).
Apart from a source of information for my survivors, this list is very handy for me. Every so often I need to look up an account number or contact information. Instead of digging through my files I can just pull out the financial information list.
With such a list, any of my survivors could see the structure of my household’s finances and find our assets. But that alone is not enough. Would my wife or children know what to do with the assets they inherit? Since I’m the only member of my nuclear family interested in personal finance nobody else knows very much how to manage the portfolio. Therefore, the second component of the information I leave for my survivors is a letter.
The letter explains how my survivors might go about educating themselves about our finances. It indicates where to find all important documents. It also explains that the way I manage things may not be suitable for them. I make a few suggestions as to how to simplify the portfolio. I recommend certain people they might talk to. I suggest they ask questions on the Bogleheads Investment Forum. I have not yet gone so far as to line up a financial adviser of some sort but one day I may do that. Without this letter as guidance I am not confident my survivors would know how to begin to deal with our investments. That’s why I wrote it. (Your situation may be different. If your spouse and/or children are investment savvy then you don’t have this problem.)
The final step is to put all this information in a place where my survivors will find it. That’s easy (for me). Our estate planning attorney keeps our original wills in his fire-proof filing cabinet/safe. I’ve given him a sealed envelope that includes the financial information list and the letter. I wrote on the envelop that it is to be opened by the executor of my will. The letter also indicates where else to look for a more recent version, just in case I pass before providing an update to our attorney.
I know first (well, really, second) hand how challenging it is to unwind a deceased family member’s estate. My maternal grandfather had an exceedingly simple estate. Yet it was still quite a headache for my mother to find all the pieces and to dispose of them properly. Had my grandfather made a list and written a letter of the type I just described it would have been simpler for my mother. It is so easy to do and, as I said, the master list of financial information can be of use in life, if not in death.