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Are you the family financial decision-maker?

Key takeaways

  • Consider getting your financial house in order sooner, rather than later. Your family and loved ones will thank you for it.
  • As your family's financial go-to person, make sure you have estate planning strategies in place that can help you protect and provide for your loved ones after you pass.
  • On your own or working with a financial professional, conduct a capital needs analysis to take a fresh look at your financial situation to reexamine your retirement horizon, cash flow, risk tolerance, and investing strategies.

Having a loved one die for any reason is painful enough, but what happens when a family's key financial decision-maker passes, especially during the COVID pandemic? How do the surviving spouse/partner and other family members cope not only with the personal loss, but also with the array of unfamiliar financial decisions now confronting them?

Plan ahead and involve the family

The best answer is to have a holistic financial plan in place—sooner rather than later. If you are your family's financial go-to person, think about how you will shield them after you go, as you have during your lifetime.

It may not be easy, but it's best to begin by opening a dialogue with all family members, including adult children, so that everyone is involved and understands each other's wishes, both personal and financial. It is also important to include those named in legal roles, such as financial or health care power of attorney, executor, or trustee. If you have named family members to serve, make sure that they are aware of their expected role. If you have named other individuals, consider involving them in the conversation so everyone receives the same baseline information.

"You don't need to get into great detail about the value of your assets, but do have an open family discussion about who to contact if something happens," says Pamela Pirone-Benson, vice president, advanced planning at Fidelity.

Also consider having a discussion about what role each child may want to play in your estate plan. Maybe you will find that your children want to work together. Or you might find that one or more lacks the interest or ability to handle financial and health care decisions on behalf of the surviving spouse, and you'll need to appoint someone else such as an unrelated third party.

Finding your way along a new financial path

"There are a lot of things to consider all at once, but one critical question to answer is 'If a family member dies, what sources of funds can the family immediately access to survive?'" says Pirone-Benson. "It becomes more challenging when the higher-earning spouse passes, particularly if it is unexpected. So it's important to consider if a life insurance policy makes sense for your situation. We usually conduct a capital needs analysis to help clients process these questions."

The following are 2 broad categories of questions to help guide that conversation. Working on your own or with a financial professional, your answers and actions can help keep you on the path to successfully reaching your retirement and other financial goals as well as help with continuity when you are gone.

Section 1. Getting your financial house in order today

Understanding the basics of personal finance

If both members of a couple are not fully engaged with financial planning, take steps to have everyone understand some foundational money management concepts:

  • How much money do we have? (net worth)
  • How much is owed on mortgages, car payments, and credit card debt?
  • How much money is coming in? (income)
  • How much is being spent every month? (expenses)
  • How is our monthly cash flow? (monthly income vs expenses)
  • Have you recently reviewed any life insurance policies, including the type, payout structure, and beneficiaries?
  • How can we easily access all of our financial information (online or paper) including : brokerage, banking, and retirement accounts; monthly bills such as a mortgage, credit cards, cable, subscriptions, and utilities; tax returns, insurance policies, and any outstanding loans, such as auto or student loans

Managing the household, especially if you sense the need to pare back on expenses

  • How do the monthly bills get paid and what automatic bill pay systems are in place?
  • Is credit card debt under control?
  • What are your 3 biggest expenses after your mortgage/rent? Are there ways to reduce these expenses?
  • Are there upcoming planned large-scale purchases that can be cut back?
  • If you haven't had to create and live by a family household budget, is now the time to start?
  • Do you plan to sell any stocks or assets to help pay real estate or income taxes over the next few years?
  • Should you downsize?
  • Have you added umbrella insurance to boost coverage on your home, auto, and personal liability policies?

Section 2. Planning for tomorrow: What to do after the death of a loved one

After things settle down, you'll have to take a fresh look at your financial situation. If there are significant life insurance proceeds they could be included in your loved one's taxable estate depending on the state you live in, so it may make sense to think about the best ways to use that money. For example, it might be helpful to pay off debt, provide the survivors the ability to take time off from work to grieve, or even help other family members in some way. If you are the person named to settle the estate, one way to better understand the tradeoffs you may face is to work with a financial professional to do a survivor income analysis that can help address these kinds of financial planning questions:

Saving and investing strategies

  • Do you have ample term life insurance coverage that ensures that you'll have enough money to pay for college and/or pay off your mortgage? (if anything were to happen to you…)
  • Are you saving enough for retirement, including in your workplace savings plan or through IRA contributions?
  • Can you (the survivor) afford your current lifestyle?
  • What other savings options (outside a workplace savings plan) should you consider?
  • If you are now alone or a single parent, how does your new situation impact your risk capacity and risk tolerance levels?
  • If your behavioral risk tolerance profile differs from that of your deceased loved one, how should you rebalance your portfolio assets?
  • How will your investment strategies evolve now if you are making all the financial decisions?

If you have children or young adults still living with you

  • What role will life insurance play in protecting your ability to earn an income in the future, if something happens to you?
  • How much money do you need to save (and potentially borrow) to help fund a college education? Work with a professional to get financial aid estimates for both public and private college options.
  • If your children are heading to college soon, do you want to help them launch their career or help with post-undergrad tuition or related expenses?
  • Are your children (over age 18 in most states) the named beneficiaries on your retirement and investing accounts?

Impact on retirement planning

  • What sources of guaranteed income (Social Security, pensions, annuities) will you have to cover your essential expenses?
  • How confident are you that your financial plan will enable you to achieve your goals—and not run out of money?
  • Should you alter the date when you plan to retire?
  • Should your investment strategy and asset allocation be updated?
  • If you received a life insurance payout, how will you use that money?
  • What is your Social Security claiming strategy?
  • Can any other sources of retirement income can expected? (rental income, part-time employment, etc.)
  • As a survivor, what pension benefits are you entitled to?

Employer benefits

  • How long will your current health benefits last? If you have been covered by your spouse's employer-sponsored health plan, it's time to research other options such as COBRA and understand if you can tap into any retiree medical benefits of your spouse's former employer.
  • Can you employ assets in your spouse's HSA to help pay current and future health care expenses?
  • Have you taken time to review benefit options related to:
    • Stock options/employee stock plan
    • Employer-paid supplemental life insurance
    • 401(k) assets
    • Executive compensation such as a nonqualified deferred compensation plan

If you are already retired

  • Can you file for Social Security survivor benefits?
  • Have you reevaluated your Medicare coverage?
  • Have you developed a real estate strategy for where you'll live over the next 15 to 30 years?

Consolidate and simplify

Another time-saving move is to consolidate and simplify your financial affairs. If your family already has a trust, that should simplify matters. A trust can direct ultimate disposition of assets, so you need to be sure that your nonretirement accounts and assets are retitled. If you don't have a need for a trust, consider consolidating assets into as few accounts as possible, while still making sure the accounts fit your financial and estate needs in the most tax-efficient manner possible. Your family's tax advisor could help to provide guidance given your particular situation.

Also, try to organize your important documents so they will be easy for your survivors to access. "You should have a current inventory of assets, a contact list of advisors, and a list of legal documents and where to find them, including computer and online banking passwords," says Pirone-Benson. And be sure to review the beneficiary designations, or lack thereof, as beneficiary designations override decisions made in your will and/or trust. You may want to review all titles to assets with your family's tax advisor to make sure it coordinates with your estate plan and wishes.

Tip: Consider FidSafe®, a free, secure online safe deposit box, to save digital backups of electronically scanned essential documents.

Don't go it alone

There is a lot to take care of when a loved one passes or becomes incapacitated. Ideally, you should hold a family meeting while the key decision-makers are still alive and healthy. If your loved one has passed or becomes incapacitated, it still makes sense to review documents and see how the plan needs to be adjusted for the family's future benefit.

Everyone can benefit from help, including from professional guidance, especially during a difficult time. "Having a family meeting ahead of time can lay the groundwork for a solid estate plan and give you a better sense of control," says Pirone-Benson. "For the executor, who may or may not be the surviving spouse, it makes sense to meet with an attorney to discuss legal and tax issues associated with settling the estate."

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Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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