Part two took a closer look at The Family Love Letter’s first section – Advisors and Assets – and why those topics are the foundation on which all other sections of the Letter are built.
The latest installment of this six-article series examines an individual’s liabilities as part of The Family Love Letter’s next section – Financial Information.
What are the liabilities, who is the contact person for each, and where are the related documents located?
Stewart Barnes, a private wealth advisor with The Myrias Group, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Roanoke, likes to help clients understand the importance of this section by describing it as, “Turning over rocks you don’t think about.” And when one stops for a moment to think about the number of liabilities they may be responsible for, there’s a quick realization that there are indeed a lot of rocks to look under.
“Imagine you’re gone or that you can’t talk,” Barnes says. “What liabilities exist? What do you owe? Have you made any personal guarantees? Are there credit cards? Have you leased something? Are there website and magazine subscriptions? Who is listed as an authorized user on each account? Someone has to change or eliminate those accounts, and if they have to wait for bills to come in or for an automatic debit to occur once a year before they can discover a liability’s existence, it’s going to take a lot of time and frustration.”
To illustrate the point, Barnes shares the story of a widower who went to a cell phone provider’s retail location to cancel his wife’s phone service following her death. Because he wasn’t listed on the account, the cell phone provider wouldn’t initially allow him to close the account, and a lot of red tape ensued.
“Here he is, trying to do the right thing,” Barnes explains. “No one wants to have this frustration on top of just losing their spouse. When it comes to completing the liabilities section, there are a lot of little things, as well as some big considerations, and they’re all important. Digging through and documenting all those little things now is important because it helps whomever comes behind you understand your financial picture, instead of them being frustrated at the lack of information.”
While this section of The Family Love Letter is brief, Barnes says, it is particularly important because of the growing trend for people to manage their various accounts online and opt out of receiving paper statements – eliminating an important paper trail that previously would have helped a family member discover the liability.
Completing Section II – Financial Information
Credit card debt. List all credit card accounts, the issuing bank or company, update any outstanding balance regularly, and provide a copy of each card’s terms and conditions. Barnes explains that some credit cards have a “death provision” whereby any outstanding balance is automatically cancelled in the event of the cardholder’s death. “That might be a feature they would have paid extra for,” Barnes says, “and most of the time the issuing company would probably tell you of the feature’s existence, but I wouldn’t take for granted that the cardholder would have the documentation or remember that feature’s existence. That’s why it’s important to have a copy of the card’s terms and conditions.”
Guaranties: A guarantee could be as simple as having co-signed for a child’s lease agreement on their first apartment after college. Whatever the case, Barnes explains, it is a personal guarantee and one that needs to be included in the plan so someone knows of its existence.
Responsibilities: While not legally binding, responsibilities are moral obligations and commitments that the individual wishes to see continue, even in the event of their death or incapacitation. “It may be $500 that you contribute annually to your grandson’s college fund,” Barnes explains. “If it’s important to you, then it needs to be formally conveyed to someone.”
Leases: Whether it’s for a vehicle, apartment, office, or equipment, even if the leaseholder dies the contract is still in force for the balance of the lease, Barnes cautions. “Provide specific information about any leases held. A good example is a storage locker,” Barnes says. “I can’t help but believe that some of the scenes in the reality show Storage Wars, in which the contents of storage lockers are auctioned off to the highest bidder after the lease isn’t paid, are the result of someone passing away and heirs simply not knowing of the locker’s existence and lease.”
Subscriptions: Satellite radio, newspaper, magazines, or a subscription-based website – someone will eventually discover the subscription accounts’ existence as renewal notices are received. The process will be easier and faster, however, if the subscriptions and their expirations are listed.
Monthly budget: Providing a monthly budget that details cash flow coming in and going out is important for several reasons, Barnes says. “We want to know how much money is coming in every month and where it comes from,” he explains. “Is the individual receiving benefits? Are there dividends being swept into a bank account monthly and used to cover living expenses? Is money deposited automatically or is a physical check received? The same questions should be asked for expenses. Are any expenses being paid automatically or online? After the expenses are paid, is there money left, or are we running a deficit monthly? Doing this work and providing insight will save a lot of time.”
Barnes shared a cautionary example of a client with a life insurance policy earmarked to help pay for someone’s college education in the event of the policyholder’s death. The policy was automatically paid for quarterly from the insured’s bank account. The insured became incapacitated, caregivers closed the bank account, and the policy was allowed to lapse because no one knew of its existence or that it was being paid for from the bank account. The insured died a short time later and because the policy had lapsed, the funds designated for college expenses – funds that were planned for and should have been there – were now non-existent.
Completing a Family Love Letter
Part four of The Family Love Letter series in the September/October issue of OurHealth explores the Love Letter’s third section, Insurance and Benefits, and discusses what types of insurance policies exist, details related to each, and where they’re located.