If people have ever been more worried their finances than they are right now, I’ve never seen it. People are saving more and taking a closer look at their investments. This all makes sense. But there is one step that too many people overlook when it comes to finances – and it’s a step that doesn’t cost them a dime. I’m referring to the ol’ “in case I die” instructions. This letter tells the survivors:
- Who to contact
- Where the money is
- What to do with the money (this is knows as “The Continuation Plan”)
Writing an “In Case I Die” letter
Even if you have the “in case I die” letter, you likely don’t have the “Continuation Plan” set out. This is a subject that is very dear to my heart since I was orphaned at 17 and had no idea what to do or where to go. It was not a very pretty story. Do me a personal favor. Don’t make your family go through that. Instead, let’s go through the contents of what your letter should include.
1. Who to contact. This list should include your doctors, lawyers, financial advisors, insurance agents, religious advisor, closest friends and family.
2. Where is the money? List the account numbers and the contact person at each institution. Explain the intended purpose of each pot of money (retirement accounts are long-term for example). And while you are at it, take steps now to ensure that your survivors can get to the money in the event of your untimely demise. You may want to use trusts or powers of attorney for this. Talk to an attorney before taking action though. (I watched a lot of Perry Mason growing up but I haven’t passed the bar yet. Get qualified legal advice on this one.)
3. What to do with the money (The “Continuation plan”). This is the most important part of the letter. How will the survivors …..eh….survive? If you’re gone, your income probably goes away with you.
Creating a financial continuation plan
Under section 2 above (Where is the money), I’m sure you have life insurance. Your survivors will receive the insurance money and your investments, but do they know how to invest it? Do they know what to do with the money?
If you’re gone, not only does your income disappear but your expertise too. If you are the financial alpha dog at home, make sure the family knows what to do if you exit unexpectedly.
And keep in mind that your survivors will need to replace your income for the greater of:
- Your surviving spouse’s life expectancy
- Your youngest child reaching age 21, to pay for college.
If you don’t know how much money your survivors will need, a quick and dirty rule of thumb is 15 to 20 times your annual income. So, if you make $75,000 per year, your family will need a total of $1,125,000 (investments plus insurance proceeds) – at a minimum to replace your income. By the way, no cheating. The equity in your home doesn’t count as an asset for this example. The family has to live somewhere…..right?
Again, the easiest and cheapest way to create that is by buying cheap term life insurance. But don’t stop there. Once you have these assets in place communicate with your survivors to let them know how best to invest that money to create the income they will need.
Do you have a “Continuation Plan” in place? Have you talked about it with your spouse? How often do you update it?