The Boy Scout motto is two simple words: “Be Prepared.” It’s important to be prepared to protect both ourselves and those we care about in the event of an emergency. No matter how unlikely that may seem on any given day, it’s always a good idea to have a plan in place.
Those plans should include how to handle your finances in the event of an emergency. Making plans might be difficult because it can make the idea of something bad happening seem all too real. But remember that you’re doing it to protect those you care about. If you don’t make a plan, it could create unneeded stress for someone who is already grieving a tragic situation, whether untimely or not.
Some of these steps will be different for single people and married couples. Hence, we’ll walk through the steps each group should take to save their loved ones a major headache down the road.
For Single People
It’s important to have a financial plan in place even if you aren’t single, but it’s especially important for single people. After all, as a single person, you may not have one person with whom it makes the most sense to share your financial information.
But even as a single person, you can rest easy as long as you follow the steps outlined here. Keep in mind that several key people are mentioned below, such as a power of attorney and executor of your will. These people can be the same person or different people — it’s up to you how you want to set things up.
Decide Who Should Have Access to Your Accounts
One of the first (and maybe most difficult) tasks as a single person is deciding who should have access to your accounts if necessary. If you don’t have children, this person can be a sibling, another relative or a close friend. It could also be the executor of your estate or even a financial planner. It doesn’t matter who the person is as long as you know it’s someone you can trust.
The reason this should be someone you trust is because they will need to be able to access your accounts in an emergency. Depending on the account, you may be able to add them as an authorized user. “Different institutions have different definitions for what an authorized person is allowed to do but at a minimum, you need this person to be able to access information about your account on your behalf,” says Sam Brownell, CFA and founder of Stratus Wealth Advisors.
Create a Durable Power of Attorney
While adding an authorized user to your accounts may allow them to do a few basic things with your account, Brownell says you should create a durable power of attorney with an estate attorney. That would allow your trusted contact to make decisions or transactions on your behalf.
Create a Will and Designate an Executor
Your will indicates how you want your property and other assets to be handled upon your death. It’s important to lay this out as there will come a day when you aren’t around to speak for yourself, even if it’s not due to an emergency.
Meanwhile, your executor of will is the person who administers your estate upon your death, as indicated in your will. This person’s primary responsibilities include ensuring that your assets are distributed to the appropriate beneficiaries. Assets could include investments, real estate, insurance policies and anything valuable you owned.
Designate a Primary and Contingent Beneficiary
Designating a primary and contingent beneficiary is a step specific to the handling of your 401(k) or other retirement accounts. The latter is a backup for the former.
“The reason these designations are important is because the beneficiary you list supersedes what you put in your will or other estate planning documents,” Brownell says. “Therefore, reviewing your beneficiaries and your authorized persons every few years or when a material event occurs (e.g., marriage, childbirth) is important to maintaining your financial health.”
There are some steps couples can and should take to protect their assets. In many cases, the responsibilities outlined above will fall to the surviving partner. But neither partner will live forever, so couples should still have a plan in place for distributing their assets when the time comes.
Set Up a Joint Checking Account
Not all couples are comfortable mingling their finances, but doing so can make things easier if one of you passes. In that case, Philip Herzberg, CFP and lead financial advisor at Team Hewins, recommends an in-between. “Spouses may funnel paychecks into one joint account for household bills and then divide personal spending cash in separate accounts,” Herzberg says.
The advantage of this setup is that the surviving spouse will already have access to the account if one partner should pass away. However, as Herzberg notes, “It is prudent to create a mechanism, such as a power of attorney document or transfer on death provisions, that permit each spouse access to cash in separate accounts should one person become incapacitated or pass away.”
Give a Hard Copy of Financial Information to Your Spouse
If keeping your data in the cloud makes you a little bit uneasy, you can keep a hard copy of any of your financial accounts that may be separate, such as retirement accounts. “Unless there is financial infidelity, couples can give access to their financial accounts to their life partners,” says Lyle Solomon, principal attorney at Oak View Law Group. “Many couples keep a hard copy of the documents in a folder and hand it over to their spouse.”