Five Financial Steps to Take Now (and One Not to Take) to Make It Easier on Our Loved Ones

A health care proxy names a person who can make medical decisions for you if you’re unable, and a living will is a written form that instructs a hospital or doctor about the life-saving measures you do — or don’t — want taken. Keep a copy of all of these documents in a fireproof safe place at home and give a copy to the person/people who you expect will administer your estate.

2.   Reach out to your financial institutions

In a recent column in AARP The Magazine, I helped a reader who was having trouble getting her mother’s financial institutions to accept the power of attorney written by her mother’s estate planning lawyer.  As I learned, this was all too common. Many financial institutions want you to use their specific forms rather than one generic one — and not knowing this until it’s too late can wreak all sorts of havoc.  Do your loved ones a favor and nip this in the bud.

3.   Review your beneficiaries

The beneficiaries that you name on retirement accounts like IRAs and 401(k)s and on insurance policies supersede your will.  In other words, they take precedence.  If you say in your will that you’ve left your assets to your current husband, for example, but you forgot that your ex-husband is still a beneficiary of your 401(k), Mr. Yesterday gets the dough. And note: If you live in a community property state, you generally have to get your spouse’s permission to leave retirement account assets to anyone other than your spouse, including your children.

4.   Consider transfer-on-death designations 

When you pass away, your heirs often have to go through a court process called probate before they receive your assets.  One way to avoid this is with a living trust, a legal document that works with a will to bypass probate.  Living trusts are effective but also expensive.  Talk to an estate planning attorney about whether one is the right move for you. 

Another option is to add transfer-on-death designations to bank and brokerage accounts, which allows them to move to beneficiaries directly on your death.  It doesn’t work for all assets, but if you are anticipating your heirs will need your money immediately, this can be a solid move.  

5.   Write a letter of instruction and suggestion 

Now that you’ve taken all of these important steps, you need to tell your loved ones what you’ve done.  This final document serves that purpose.  It’s not legal, like a will, but it is just as important. It’s a roadmap to navigating your financial life.  It should include information on all of your accounts, insurance policies, debts, and important assets. 

You not only want to list these items but also explain where they are and how to access them (including passwords). If you use a password manager like Dashlane or OnePassword, bless you.  Explain how to access the master password for that, too. The list should also include the important people in your financial life — estate planning attorneys, accountants, financial advisors, your contact at the bank — and how to get in touch with them.  And, if you have any guidelines for how you want your loved ones to use any of the resources, feel free to suggest them in this document as well (my late stepfather suggested the food he hoped we’d serve the friends and family who came to the house after he died). Then, update this document at least once a year.  As you go through life things happen – you open and close accounts, take out new insurance policies and cancel old ones, buy and sell property.  It’s to everyone’s benefit that it stays fresh. 

Finally, I promised one no-no.  Don’t add an adult child (or other beneficiary) to a bank account as a joint owner.  When you do this, you’ve given them access to your funds not just after you pass, but today.  If they are ever sued or get divorced, your money could be on the line. Their ownership of it could also prevent a grandchild from accessing as much in financial aid as they might otherwise get. 

You could also be setting up an inheritance issue. If you have multiple children, the child on this account still becomes the owner of this particular pool of money.  It doesn’t have to be split equally even if that’s your intent. In other words, it will create more problems than it will solve.  Steer clear.

Share your experience: What steps have you taken ahead of time to ease the pressures on your family after you're gone?