Those articles and blogs included:
Roma Luciw of the Globe and Mail (Why you should stress-test your finances for a sudden death)
Ellen Roseman of the Toronto Star (Time to stress test your crisis readiness)
Mark from the blog My Own Advisor (Personal Finance Stress Test)
Michael James on Money (Stress-Testing your Personal Finances)
Ellen commented in her article that “Goodfield talks about the need to take precautions against sudden death. But you may be unable to take care of your finances while still alive because of illness, injury or advancing age.” The financial stress test, created by Mark, the writer behind the blog - My Own Advisor, deals with your financial well-being while alive. After considering both articles, I concluded my initial post was too limited in scope. A comprehensive financial stress test must take into account significant events that can occur while you are alive (loss of job, health and disability issues, financial loss) together with whether you have prepared your spouse postmortem to move forward financially with the least amount of stress and disruption to his/her life.
As I embarked on today’s post, I was startled by a simple yet seemingly evident revelation; antemortem and postmortem issues are so intertwined, that if you complete the specific set of tasks and summaries in my antemortem test, you will have almost everything in place to ensure your spouse is equipped to move forward financially in an almost seamless manner in the event of your death. Essentially, all that will remain is for you to discuss the preparations you have made with your spouse. The comprehensive stress test outlined below, ties this all together.
Antemortem Issues
The questions below make-up a relevant stress test for someone who is currently healthy, but also should be considered as Ellen noted, in the context of if you took ill, became temporarily or permanently disabled or were forced to slow down because of age. I have “borrowed” some of Mark’s stress test questions for the financial and administrative section. As noted above, many of the questions and tasks require you to put your finances in order while alive; so that you ease the burden on your spouse should you pass away.
Legal Documents
1. Do you have a will? If you have a will, is it up to date? If you own a private corporation, do you live in a province that provides for a secondary will?
2. Do you have power of attorneys for both your financial affairs and your health care?
3. Have you checked to ensure the beneficiaries of your RRSP, insurance policies etc. have been updated and are not a former spouse or someone you no longer wish to benefit from your death?
Insurance
1. Do you have sufficient life insurance to pay-off your debts, pay for your children’s education and allow for your spouse and children to live in the style, or close to the style, they are accustomed to?
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3. Have you considered critical illness insurance? This is popular with many professionals.
4. Do you have shareholder buy/sell insurance if you own shares in a company?
5. Have you considered covering any capital gains your estate may incur upon your death through insurance? For example: if you have a cottage with a large capital gain and wish to keep it in the family, you may want to buy an insurance policy that is equal to or greater than the expected tax liability on the cottage.
Financial
1. Are you spending more than you earn today?
2. If your income dropped by 50% for 6 months what would you do?
3. If you needed more income what would you do?
4. Do you have access to money if you need it in an emergency (line of credit, savings account)?
5. If you had to retire today because of illness, could you financially adapt?
6. What portion of your monthly living costs are fixed such as car leases, mortgage payment, loan payments and what portion are variable/discretionary and could be eliminated or cut on short notice?
Taxes
1. Do you own U.S. property? Have you considered your potential U.S. estate liability and/or planned for it?
3. Will you have a large income tax liability upon the later of your death and your spouse's death; because of unrealized capital gains on a rental property, cottage or shares in private companies? If yes and you do not buy insurance as discussed above, how will this liability be funded without a fire sale on the above noted properties?
Retirement
1. Do you have a retirement plan, even if just an excel spreadsheet? Do you have any idea of what you expect your monthly expenses to be upon retirement?
2. If you are near retirement, have you considered the various options in regard to taking CPP early or delaying it?
3. Have you considered how to smooth your income between the time you retire and you are forced to withdraw money from your RRIF?
Administrative
1. Have you prepared an information checklist for your executor(s)/spouse? Does it list all assets (bank accounts, investments, real estate, other) you own? Is the list up to date? It is essential that the list be complete, you do not want an after death game of Where are the Assets? This list can be paper, but I also suggest a back-up PDF be scanned into a secure computer directory.
2. As I discussed in my blog on Memory Overload, the use of multiple passwords is so prevalent that you should consider making a list of your key passwords for your spouse that is put into a secure, but accessible location. The objective of this exercise is to ensure your spouse will not be locked out of your various financial accounts because he/she does not know all the passwords.
3. Consider any accounts, safety deposit boxes, safes, etc. your spouse is or is not aware of. There are various reasons why one spouse does not make another spouse aware of some of these items. However, the reason for their existence is not relevant; what is important is that you somehow ensure that someone will become aware of the existence of these accounts or safety deposit boxes if you die be it your spouse, friend, family member or business partner.
4. A digital asset many people forget to deal with are loyalty points for travel ("Heir Miles") and retail specific loyalty programs. You should ensure you have a list of all loyalty programs you are enrolled in and the number you have been assigned. Most travel programs and some retail programs allow a transfer of some kind, upon a spouse/family member death.
5. Do you have a list of emergency contact information for your doctor, lawyer, accountant, investment advisor, banker, etc.?
6. Have you prepared a summary of all insurance policies you have? This summary should be in an excel spreadsheet and list: the policy number, the insurance company, the type of insurance as well as the value of the insurance and staple it to the front of your insurance folder. Again, you may also want to create a special password protected file on your spouse’s computer that contains this summary information.
7. Have you informed your executors they have been appointed?
Postmortem Checklist
I wrote the initial stress test post because of my first-hand experience watching my mother cope financially with my father’s sudden and early death. In my mom’s case, she was able to lean on me to help sort out many of the applicable financial issues. Luckily, my father had at least dealt with the two most important post-mortem issues: (1) having a will and (2) having life insurance. But there was no discussion between my parents about their financial affairs before his untimely death and no lists for my mother to rely upon.
The checklist below is most relevant if you were to pass away. However, if you were to be disabled or lose capacity, some of the items in the checklist would be just as relevant. Though post mortem based, I suggest you deal with the tasks and issues below while alive. Dare I say, to do otherwise is selfish. For those of you that think this is a harsh statement, check out this New York Times article detailing the financial aftermath on Chanel Reynolds after her husband was killed riding his bicycle (Thanks to the Canadian Capitalist for this timely link).
Furthermore, I suggest that you actually stress test the checklist below by physically showing your spouse the locations of lists, computer files, insurance policies, password accounts etc. You will probably want to do a bi-annual walk through. As my wife was still asking me “where did you say you put this again”, we created a safety deposit back-up.
For those keen of eye, you will note the list of questions which in my original post were "do you have", changed to "do you know where". This tweak is based on the assumption you will undertake the antemortem test and follow through with the associated tasks and summaries. Thus, heaven-forbid you pass away; your spouse will have all the information at his/her fingertips and will not need to play a game of lost and found with your important financial documents.
The List:
1. If you have prepaid your funeral or have certain wishes, your spouse must know these wishes and where any related legal documents or invoices are located.
3. Your spouse must know the location of the paper or computer file containing all your insurance policies and a summary of the insurance details as discussed above.
4. Your spouse must know the location of the paper or computer file containing a summary of all your assets.
5. Your spouse must have a summary of your key passwords; these must be secure, but easily accessible.
6. Your spouse must know where you have an emergency contact list.
7. Your spouse, family member or friend must know where to find the key(s) to your safety deposit box(es) or any safe you utilize.
I promise; this is the last I have to say on this topic. I strongly urge you to take this comprehensive test for the sake of your loved ones.
The blogs posted on The Blunt Bean Counter provide
information of a general nature. These posts should not be considered specific advice;
as each reader's personal financial situation is unique and fact specific.
Please contact a professional advisor prior to implementing or acting upon any
of the information contained in one of the blogs.
