Have a Financial Plan B in Place in Case the Unthinkable Happens

If something were to happen to you and someone else had to manage your affairs, would they know what to do and where to find everything? Learn how to protect yourself and your assets.

If I asked you to write down the number of bank accounts, brokerage accounts, debit cards, and credit cards you have on a piece of paper, would the total number approach 15 – or maybe more?

If I then asked you how well you manage all those accounts, my guess is most of you would say that you handle it pretty well — even if at times it can be slightly overwhelming.

But what if something were to happen to you and someone else needed to take over managing those accounts? Would they handle it as well as you do?

In most households, one spouse typically handles the money chores. For many families this works well until the spouse handling the money becomes disabled or dies.

Even worse, what happens if you are single and become disabled or die? Who would manage your financial affairs?

As people get older, most do not consider the burden they place on a spouse, a child, or a significant other as it pertains to them having to take control out of necessity. The fact is, it is quite stressful to have to manage something you are not familiar with or maybe never had to do before.

Banks and brokerage institutions do not make it easy to deal with these issues either. In some cases, perfectly good powers of attorney are rejected by banks that not take powers of attorney older than a certain number of years.

Finding someone to get a document notarized or bank medallion signature guaranteed can be difficult as well.

Here are some ideas for how you can make it easier for a loved one to get (and keep) your financial affairs in order.

Three Things to Help Someone Put Your Financial Affairs in Order

1. Make sure you have a Durable Power of Attorney.

This will allow someone to legally “step into your shoes” and manage your affairs if you are alive but unable to. The person you name should be someone you trust, as once the power is accepted by the financial institution they will treat your power of attorney as if he or she were you.

Ideally, the document should also be updated to reflect any changes in your life, as well as any legal changes that have occurred. Preparing new powers of attorney to replace those that are 10 years old or more is probably a good idea as well.

Naming the proper person to be the executor (or executrix for a woman) of your estate is critical. Durable powers of attorney only apply when you are alive and unable to manage your financial affairs.

After you die, the power ceases to exist. The executor named in your Will is responsible for managing your estate from the moment he or she is appointed until such time that all your assets are distributed to your heirs.

Common duties of an executor include paying estate bills, filing income tax returns, and managing the investments of an estate. It is a difficult job made even more difficult since most people do not consolidate their accounts into a manageable number.

Trying to account for all these accounts once you are no longer alive and ultimately consolidating them can be daunting to an executor who has never done this job before.

2. Discuss your finances with those who may be left having to manage them.

Preparing a list of accounts and going over them with your power of attorney or future executor can help make it easier when the time comes for them to have to deal with your finances. Having a family meeting once a year can help provide for a smooth transition and help you make better, more informed decisions as to who should play what role in your financial affairs.

3. Consolidate your accounts. This can go a long way towards reducing the stress someone may feel with managing your finances.

Combining bank accounts into one or two at the same bank can help. Same goes for brokerage accounts and credit cards. Note that certain costs may be associated with consolidating accounts. Retirement plan assets should only be consolidated with other retirement plans to avoid tax issues. Combining bank accounts where your new account balances exceed federal deposit insurance limits may not be a good idea.

If you are unsure what effect consolidating your accounts would have, contact your financial advisor or accountant. They can also help you determine costs in doing this.

This article first appeared in the New York Daily News "Daily Views" column.

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