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When the family’s financial boss dies

How to prepare for the death of a family’s key financial decision maker.

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Having a loved one die is painful enough, but what happens when a family’s key financial decision maker passes? How does the surviving spouse or partner and other family members cope not only with the personal loss, but also with the array of unfamiliar financial choices that confront them?

Plan well and involve the family

The best answer is to plan ahead—and to begin the process as early as possible. If you are your family’s financial leader, 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. If an executor or trustee has already been named on the estate, that person may also want to be involved in the conversation.

“You don’t need to get into details about the assets and dollar amounts, but do have an open discussion,” advises Pamela Pirone-Benson, an estate planning specialist with Fidelity. “Maybe your children can work together. Or you might find that one or more lacks the interest or ability to handle financial decisions on behalf of the surviving spouse, and you’ll need to appoint someone else as a trusted adviser. ”

Three documents everyone needs

Regardless of how much wealth you and your spouse have accumulated, generally you should have the following key documents on hand to ensure that your wishes are carried out in case you are incapacitated or die:

  1. A will or a “pour-over” will and trust combination;
  2. A durable general power of attorney for each adult;
  3. A health care directive for each adult.

A will is an essential legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children when you die. A pour-over will is established by an individual, often in conjunction with a trust, so that upon the death of the individual, all or a portion of his or her assets can be transferred to a trust. By doing so, an individual can ensure that his or her estate has explicit directions on moving estate assets to a trust. Additionally, a properly structured pour-over may alleviate the burden of requiring the estate to undergo an often costly and lengthy public probate process.

A power of attorney appoints an agent to act on your behalf regarding financial and other matters while you are alive. A durable power of attorney simply means that the document stays in effect if you become incapacitated and unable to handle matters on your own.

A health care directive is a document that instructs others about your medical care should you be unable to make decisions on your own. In general, a health care directive outlines your wishes regarding life-prolonging medical treatments, and may vary depending on your state of residence. It becomes effective only under the circumstances delineated in the document. Also, depending on state law, it can provide an opportunity for you to appoint a health care agent to make decisions on your behalf, much like a power of attorney.

Do you need a trust?

Wealth transfer and asset protection guide

For more information to help you plan for the transfer of wealth and your values to loved ones, read An all-in-one wealth transfer checklist.

Establishing a trust can make it easier on your surviving spouse and heirs if you have died or become incapacitated. A trust can help consolidate your assets, designate beneficiaries, reduce potential income and estate taxes, provide protection from future creditors, and lay out your wishes on what goes where, and to whom. (Read Viewpoints: “Six reasons you should have a trust.”)

One option is a revocable living trust created while you’re still alive, which generally provides for you, as the grantor, or creator of the trust, to have full discretion to change or dissolve the trust at any time, as long as you are mentally competent. If you name yourself as trustee, you can also manage the assets during your lifetime, investing and spending them as you wish.

Upon your death or incapacity, a successor trustee of your choosing would take over that responsibility. Because the assets are held out of the probate estate, this kind of trust can also be an effective way to mitigate court costs and avoid probate, by which the deceased’s assets are dispersed by a court. However, estate taxes may apply whether or not the revocable trust is in place.

Of course, there are other types of trusts to consider. (Read Viewpoints: “Is your financial situation ‘trust’ worthy?” for examples of how trusts may apply to your situation.) For example, an irrevocable life insurance trust (ILIT) can provide immediate liquidity for your estate which can help heirs pay estate taxes right away, instead of waiting for illiquid assets such as properties to sell. (Read Viewpoints: “Can life insurance help your estate plan?”) If you are considering a trust, be sure to consult a trust and estate attorney.

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. If not, 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 (see box). “You should have a current inventory of assets, a contact list of advisers, and a list of legal documents and where to find them, including computer and online-banking passwords,” says Kevin Ruth, head of wealth planning at Fidelity Investments.

And be sure to review the beneficiary designations on life insurance policies, retirement plans, and taxable accounts, and review the titling of the assets with the family’s tax adviser.

Don’t go it alone

There is a lot to take care of when a loved one passes or becomes incapacitated. 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. It makes sense to meet with an attorney to discuss legal and tax issues associated with settling the estate. And if you have close relatives or friends who can help you, this is the time to lean on them.

Learn more

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The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre‐ and/or after‐tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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