How to Prepare Financially for Unexpected Events

For some concepts mentioned below, you may need to consult proper professional services. 

Understandably, thinking about the possibility of death or incapacity is difficult and uncomfortable; however, it’s important to prepare for such incidents and emergencies. Even though it may take a few hours to review your options for preparation, it’s a small investment of time for peace of mind.

Remember that laws vary by state and that this information should not be considered legal advice. Preparing for the worst-case scenario may not be pleasant, but it can bring you and your loved ones peace of mind and security.

Here are five documents (and updates) you should understand and address:

1. Durable power of attorney for finances 
2. Advance healthcare directive 
3. Last will and testament
4. Account beneficiaries 
5. Spreadsheet of important information

Durable power of attorney for finances

In the event that you become incapacitated, it’s important to ensure that someone you trust is able to take care of financial matters, like paying bills, depositing or withdrawing cash from a bank, and managing your investment accounts. 

Even if your family members are willing to manage your finances, they will not be able to legally act on your behalf without a durable power of attorney unless they petition a court to be your financial conservator. This is a burdensome and costly process;. requesting conservatorship can even be more time consuming and inefficient if someone files an objection to the petition or other unusual circumstances arise.

You can avoid this mess entirely by appointing a trusted person (usually your spouse, parent, or child) to be your durable power of attorney for financial matters. A durable power of attorney for finances is a person who is legally able to make financial decisions (and conduct transactions) on someone else’s behalf.

Assigning a durable power of attorney for finances can be as simple as filling out a standardized legal document (which can be found online) to be signed by you, your agent (the person you’re granting the powers to), and a notary or two witnesses, depending on your state. 

For example, California permits either a notary or two witnesses to co-sign a durable power of attorney. Once the document is signed, you should scan copies of the document and save them in a safe place that you and your agent have access to, preferably a digital vault like Google Drive or Dropbox. 

Your agent may then use this document to act on your behalf when dealing with third parties, like banks or other businesses.

Advance healthcare directive (also known as a living will)

Health care management ranks as important as financial management when it comes to potential incapacitation. 

To give people greater control over their healthcare decisions, even if they cannot express their wishes due to physical or mental incapacitation, states provide a form called an advance healthcare directive. 

This document specifies how you should be treated in emergency medical situations, and it grants power of attorney for health care to someone of your choosing who will make medical decisions on your behalf if you are incapable of doing so.

Some of the questions to think about when filling out an advance healthcare directive typically include:

• In the event that you are unconscious and in critical condition, do you want doctors to attempt to prolong your life, even if there is little hope for a future quality of life? 
• Would you want access to pain medication, even if it might have negative side effects?
• In the event of your death, would you want your organs to be donated, and if so, for what purpose?

These are difficult questions, but they are questions that you (or at least one of your loved ones) should have the right to answer. 

Instructions you specify for your own health care, such as “Do Not Resuscitate” orders, will override the decisions of your designated health care agent in the event they conflict. But you may choose not to specify any health care decisions ahead of time; instead, you might defer those decisions to your agent. In addition, you may specify whether your agent’s authority becomes active immediately upon document signing, or only if your primary physician deems you incapable of making decisions on your own.

Like the power of attorney for finances, this document must be signed by the principal (you, or whoever is designating an agent), at least one agent (person granted power of attorney for healthcare), and  two independent witnesses (laws vary by state). Some states maintain an advance directive registry where you have the option to store your directive for easy access in the event of an emergency. You can find free copies of each state’s advanced medical directive here.

Most states allow close relatives to act as surrogates who can make medical decisions on another’s behalf in the event of incapacitation. Usually priority is given first to one’s spouse and then to one’s adult children, if there are any. Still, completing an advance health care directive is beneficial because it allows you to provide instructions about your own health care and it allows you to designate an agent of your choosing – one who may not be your state’s default designee.

Last will and testament

A last will and testament is a document that expresses how you want your property to be distributed upon your death. If you die without a will, your state will decide how your property is distributed. Jointly-held property shared between you and your spouse will likely go to your spouse, and remaining solely-held property will be split among your spouse and other family members in some manner determined by your state’s unique laws.

Wills also include the name (or names) of the person (or people)  responsible for overseeing the orderly distribution of your estate. This person is called the executor of your estate; sometimes, a person will designate two people to act as co-executors.

You can choose to give all of your assets to one person, or apportion them however you like. You can even provide special instructions for specific assets to be given to particular individuals.

Wills can come in any format, ranging from written free-form letters to pre-prepared templates that can be found online. All states require two witnesses to sign the will, testifying that you, the principal, have the capacity and intent to make your wishes known in writing.

In certain cases, an estate will move through the probate process depending on the types of assets held within. Probate is a legal procedure that formally allows the executor or co-executors to distribute assets according to the decedent’s wishes. Some people are able to avoid probate by using a living trust, or if the decedent had a very small estate (size varies by state).

Designation of beneficiaries

Certain financial accounts allow you to name one or more beneficiaries, or people to whom the account (or accounts) will transfer to upon your death. The beneficiaries listed on these accounts will override the contents of your will, so it’s important that your listed beneficiaries are up to date on all accounts that allow you to name them. 

Typically, the accounts that allow you to name beneficiaries include retirement plans (401(k)s or IRAs ), life insurance plans, and annuity contracts. Some standard brokerage accounts will also allow a “transfer on death”, or “TOD” designation. 

Spreadsheet of important info

Finally, it’s useful to centralize your most important financial and personal information so that loved ones can easily access it in the event of your incapacitation.. Here are a few guiding tips for creating such a document:

• Consider creating a spreadsheet that lists personal information, including driver’s license number, passport number, Social Security number, and/or photocopies of the original documents. 
• Add a sheet that comprehensively describes your financial affairs, including bank accounts, investment accounts, retirement plans, other assets, credit cards, and any debts you have such as auto loans, student loans, and mortgages. 
• You should also link to digital copies of your will, advance healthcare directive, and durable power of attorney for finances.
• Lastly, consider adding login information to important online accounts. Because this information is especially sensitive, be sure not to store it in an easily-accessible place or one that many people know about or can access. 

Store this spreadsheet in a safe place that can only be accessed by one or more trusted people.

Summary table

	Purpose	Useful in the event of incapacitation	Useful in the event of death?
Durable power of attorney for finances	Allows agent to act on your behalf for financial matters	Y	N
Advance healthcare directive	Allows agent to act on your behalf for medical matters, and allows you to specify your medical wishes	Y	Y
Last will and testament	Allows you to specify how your assets should be distributed upon your death	N	Y
Account-specific designation of beneficiaries	Allows you to specify the beneficiary of a specific account (usually a retirement plan or life insurance policy)	N	Y
Spreadsheet of important info	Allows loved ones to easily access your most important financial and personal information	Y	Y

It might be unpleasant to think about, but having a plan for your finances and for your healthcare will allow you to achieve a greater level of peace in your life.