Amanda DesBarres, owner of Help Unlimited, which provides personal money-management advice, with offices in the Washington, DC, metro area and Charlottesville, Virginia. DailyMoneyManager.com
Could someone step in and successfully manage your financial affairs if you are unable to do so yourself? Of course, you could execute a “financial power of attorney” designating someone as a “financial agent” to act on your behalf in financial matters if you’re incapacitated. But just drafting that document with an attorney, which you should do, doesn’t guarantee that this relative, friend or adviser will know what to do. The issue isn’t so much whether he/she lacks financial savvy—it’s that figuring out someone else’s finances on the fly is a massive challenge.
Having a financial plan in place for health emergencies is especially on many people’s minds now because of the coronavirus pandemic, but an incapacitating emergency could come up at any time. Here’s how to prepare finances for an emergency handoff…
Simplify In Advance
Consolidate credit cards and bank accounts. Missed credit card payments are among the most common missteps when someone takes over your finances. The more cards you use, the greater the odds that there will be a problem. Cut back to only two, if possible.
If you have multiple checking or savings accounts, consider consolidating to one of each, preferably at the same bank—more accounts mean higher odds of overdrafts. Especially troublesome are accounts with automated withdrawals or payments—easily overdrawn if no one is paying close attention. If there are lots of CDs, savings accounts and/or money-market accounts at different institutions, some could be easily overlooked.
Stick with paper statements. It’s perfectly fine for you to access your accounts online, but it’s easy for someone else to overlook or be shut out of your online-only accounts, which may be difficult to access. Bills and statements that arrive in the mail provide a wonderful fail-safe. That’s true even if the financial agent doesn’t live near you—your mail can be forwarded to that person by the post office or a trusted neighbor.
Draft A Road map
Create a concise guide to your finances. Having all of your financial information in one place will save your designated agent a lot of time and greatly reduce the odds that something will be missed. Handwrite this list, or type and print it. But don’t save it on your computer or send it via e-mail—that would increase the risk that this sensitive info could be stolen. Among the details to include…
Income sources. Note how each of your income streams arrives—pensions and Social Security payments often are direct-deposited into bank accounts, for example. If you have income that arrives by check, explain where it comes from, when it should arrive and what to do if it doesn’t arrive. Example: If you have a rental property, your tenants or property-management company might send you paper checks each month.
Recurring payments—including mortgage/rent, utilities, taxes (estimated income taxes and property taxes), insurance premiums…payments made to personal or household assistance providers…and other bills that recur on a regular basis. Search your checking account and credit card transaction histories to make sure you haven’t missed any of these. For each listing, provide your account number, password/PIN and the company’s contact phone number or website, as well as a brief description of when and how it is paid. Indicate whether you write a check or have set up automatic payments from an account.
Any payments made annually or semiannually deserve special attention—the less often a recurring bill is paid, the greater the odds that your financial agent will overlook it when reviewing your finances. This is common with long-term-care insurance, home/auto insurance and property taxes. Highlight the dates these are due, and add a warning that this date is important. Example: A woman was in a rehab facility when her long-term-care policy’s bill arrived. The deadline passed before she or her loved ones realized anything was amiss. The insurer refused to reinstate the policy.
Helpful: Many insurers allow you to name a third party, such as a friend or family member, to be notified if the policy is behind in payments.
Bank, investment and credit card accounts. Include each institution’s name and contact phone number, account number and passwords/PINs.
Financial professionals you work with. This could include a tax preparer, estate attorney, financial planner, investment adviser and/or trust officer. Provide phone numbers and e-mail addresses. These pros might be able to help the agent answer questions about your finances—though likely only questions related to their specialties. In addition to keeping this list with your plan, give it to loved ones so if all else fails, these people can piece together your financial activity.
Your personal information. Provide your full name, mailing address, e-mail address and phone number(s), date of birth, Social Security number and mother’s maiden name. If you were widowed within the past five years, include your late spouse’s personal info, too. Photocopy your driver’s license and health insurance/Medicare card and attach these to your financial guide.
Provide Further Guidance
Confirm that your financial guide is understood and properly stored. When you hand your guide to your financial agent, ask him to read it in your presence so that he can ask about anything that isn’t clear. Ask him to store it where he stores his important documents—storing it anywhere else increases the odds that it will be lost. Review the guide annually together and make necessary updates—this is also a good way to confirm that he remembers where your guide is stored.
Offer guidance about paying big bills. If your agent is one day forced to take charge of your finances, it probably will be because you’ve had a medical emergency—which means that he might have to pay sizable health-care–related bills on your behalf. Provide advice—either in your written guide or verbally when you discuss it—about what to do if there isn’t enough money in your bank account and emergency fund to pay big bills. You could recommend that the agent contact the billers to ask whether payments can be spread out over many months…and/or explain which of your investments should be tapped first if needed to help pay bills.
Explain required minimum distributions (RMDs). Tax penalties can apply if insufficient withdrawals are made from tax-deferred retirement accounts each year. Unfortunately, RMDs often are overlooked when people take over older relatives’ finances—many preretirees have never even heard of RMDs. If you must make RMDs (or will have to in the years ahead), make sure your loved one is aware of this. Provide details about how much must be withdrawn…from which account(s) to withdraw money…what to do with withdrawn money…and how to tell if the withdrawal already has been made for a particular calendar year.