Wednesday, November 09, 2011

How A Tragedy Can Turn Into A Nightmare

The death of Rapper Heavy D reminded us that tomorrow is not promised. It also provides valuable lessons that if your finances are not in order a sudden tragedy can turn into a nightmare. Sudden tragedies are personal life events that occur and can affect your financial security and well-being. Additional sources of income can change without warning.

Many families are caught off guard when a family member dies unexpectedly and struggle trying to mourn for their loved one and handle financial payments and funeral arrangements. Keeping your finances in order and providing important information to your family relieves a burden on them when a death occurs and makes the healing and mourning process easier.

If your parents, spouse or children refuse to talk about your death, get a neutral party such as an insurance provider to talk to them. To help prevent a sudden tragedy from turning into a financial nightmare follow these 18 tips.

1. Will. Create a will and update it at least one a year or if you experience a serious health change or life event change.
2. Lawyer. Establish a power of attorney which allows a person provides a written authorization to act on another person's behalf.
3. Health care proxy. Advance directives or health care proxies identify a person's wishes and preferences for medical treatments. When a patient is incapable of making medical decisions, a health-care proxy can act on the patient's behalf to make decisions consistent with the patient's will.
4. Trust. A trust manages the distribution of a person's assets by transferring it to other people. Trusts can be used to shield assets from estate taxes.
5. Advance Arrangements. If you are dying you can make advance arrangements or prepay for your funeral. Let your family know your wishes. Consider bundling services or prepaying for items if you know your wishes will not change or you don’t plan on moving to another state. This also spreads out the costs over a period of time which reduces the financial burden. The risk of prepaying for services is that the company may go out of business before the time of death.
6. Instructions. Leave instructions with your spouse, child or close friend and the executor of your estate such as: location of important papers, account numbers, list of assets and debt with balance, monthly payment and due date; contact information for your lawyer, financial advisor, doctor, your wishes for funeral arrangements, etc.
7. Beneficiary. Ensure beneficiary information is reviewed yearly on all insurance and financial documents, accounts, benefits, will or when a life change occur such as marriage, divorce, birth of a child, etc. Provide your beneficiaries with information to access your accounts including usernames and passwords, and contact information for your service providers.
8. Store. Keep a copy of all financial and important documents in one location: social security card, insurance policies, birth certificate, deeds, marriage certificate, passport, driver’s license, stock certificates, retirement and bank statements, tax returns, car title, etc. Make at least 5 copies of each document and store in different locations. Buy a waterproof and fireproof safe and store a copy of all important documents in the safe.
9. Be aware. If your spouse handles all of the finances become knowledgeable about the finances too.
10. Update. Update the deceased person’s assets or joint accounts to the survivor’s name.
11. Debt. Don’t pay any debt of a deceased person until you verify with a lawyer.
12. Taxes. Hire a tax preparer or accountant to prepare your taxes. The tax preparer will be knowledgeable about laws that affect beneficiaries and estates.
13. Comparison Shop. Get estimates of various services needed so you make create a budget for those expenses if you don’t have the money upfront. The average cost of a funeral can range from $2,000 to $10,000. Ensure your insurance policy at a minimum covers the funeral arrangements.
14. Burial Fund. You can create a burial fund to cover the cost of funeral arrangements which will be an extra source of funds that can cover unexpected costs. The fund should also have enough money to cover monthly expenses for 3-6 months. The ideal option is for 9-12 months.
15. Supplemental insurance. Consider purchasing supplemental insurance is Medicare does not cover all of your services or if you are not eligible for Medicare.
16. Long-term insurance. Consider purchasing long-term care and disability insurance as early as possible to save money on the cost and reduce the cost of future medical expenses.
17. Medical. Obtain copies of your medical records each year.
18. Primary Contact. Designate a family member as your primary contact to keep in touch with family, friends, employer, and service providers.

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