Preparing heirs before a loved one passes

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 09/27/23

Looking out for family includes being prepared for emergencies. That can mean thinking about potential financial or health crises as well as transitions, such as a family member becoming incapacitated or passing away.

No one wants to think about a loved one passing away. But providing critical information and documents that heirs will need in this situation can offer clarity in a time of great stress.

It’s also important to plan ahead. Having plans clearly laid out can ensure that heirs will understand a loved one’s wishes, and it will reduce the likelihood they will make mistakes.

Without this type of planning, family members may find it challenging to locate documents and the information needed to move ahead. Lack of direction can lead to confusion, delays in getting bills paid, or processing the estate.

Creating a plan with a checklist can be a helpful way to collect and organize important information. Consider using this “I Love You Letter” (or heir preparation packet), which provides a detailed outline and checklist that identifies the important areas for planning.

The letter is organized in order of urgency to provide survivors with critical information as soon as possible.

Key information and documents

The “I Love You Letter” helps prepare heirs for the documents and information they will need to gather. It can be a helpful resource to help stay organized throughout a difficult time.

The sections include:

1. Important information and documents

This section can include general information about the individual that will be needed for a variety of financial and legal activities such as their Social Security number, Medicare ID number, mobile phone, digital assets, and passwords.

Also, the individual can list important documents and where they can be located. These documents can include, but are not limited to, insurance documents, trust documents, 529 plans, prenuptial agreement, citizenship papers, retirement plan beneficiary designations, organ donation, and more.

2. Advisors and critical financial information

Individuals may use the services of a variety of advisors including attorneys, financial advisors, tax preparer, and insurance advisors. This section includes a list of advisors and contact information associated with the individual’s assets, bank accounts, loans, credit payments, and other financial liabilities that need attention. The section also provides space to include the locations of the documents.

3. Insurance and benefits

Many people have more than one type of insurance policy, including long-term care, health, disability, property, auto, boat, and policies that cover jewelry and other assets. In addition, some families have umbrella liability policies or specific insurance to cover identity theft.

4. Family history

In the case of the death of a family member, the funeral director will seek information regarding family history for a death certificate and published death notices. In the case of an emergency or incapacitation, it will be important to locate documents such as a health proxy and advanced medical directives when making health care treatment decisions.

The “I Love You Letter” provides room for a legacy letter where the individual can outline their final wishes.

5. Guidance on next steps

In addition to the original “I Love You Letter,” a second document entitled “Final wishes and ethical will” allows individuals to outline next steps and relevant documentation in case of emergency, incapacitation, or death. The ethical will section of the letter is an opportunity to share values, life lessons, and wishes with the family.

This outline includes the contact information for the financial advisor who has received distribution instructions for the estate.

The individual can also record the locations of copies of key documents, including current financial statements, life insurance, property ownership, a disposition list, and property agreements.

Securing the letters

The documents can be stored in different ways.

Some individuals may want to keep all the copies in a locked location that is accessible only by trusted family or advisors. They may provide copies only to the person they are confident can manage the estate.

Electronic copies must also be securely stored. Electronic copies of the document should be saved on a second device or secure online location. Avoid sharing the document electronically. But if it is necessary, be sure to use appropriate security measures.

An additional support

The document is meant to be a guide for heirs during a difficult time. It is designed to consolidate information and supplement the key documents, not to replace other planning documents like wills.