Recently, when a family member died unexpectedly, I saw financial chaos up close and personal: his wife couldn’t access some accounts, didn’t have login or bank information and didn’t even know what credit cards or bills he had.
The grieving widow could have been spared the hassle and added stress of finding and then gaining access to her late husband’s financial accounts if the couple had invested some time to make an emergency financial file.
“An emergency financial file is a critical piece of information that can ease the strain in times of crisis,” says Amanda Kaphammer, founder of Sol Spyre, a financial services and wealth management company in Bend, Oregon. “It serves as a central repository for all essential financial information to enable someone to pick up the pieces.”
You may have thought preparing a will, a revocable living trust or a power of attorney was plenty, but creating an emergency financial folder is the extra step to spare your loved ones from economic chaos in the event something happens to you.
“While everyone should have one, it’s a commonly overlooked item in emergency preparedness planning,” says Kaphammer.
What’s more, emergency folders are not strictly for the benefit of others but can be an essential aid to financial reconstruction in the event of a natural disaster, says Mark Boehm, MBA, principal at Alpha Wealth, a full-service financial firm in Glen Allen, Virginia.
This file isn’t just for families; couples and single adults should consider building them too, advises Danielle Miura, a Certified Financial Planner and founder of Spark Financials, a financial planning service firm for caregivers in Ripon, California.
Also see: What’s the best way to leave your house to your heirs?
Creating the file
“Without your critical financial information, your loved ones may not know where your accounts are held and how you want your estate handled,” adds Miura. “The difference between having your files organized or not is about more than just the stress. Leaving behind a mess can delay the inheritor’s access to funds and cause potentially high legal fees.”
Kaphammer says she and her spouse created their emergency financial file in the back of their sentence-a-day notebook. “When we have our periodic family meetings, we give it a once-over to ensure everything is still accurate and forget about it until the next time we discuss our plans for the future,” she says.
Here’s what a file should contain:
A cover letter. At Ramsey Solutions, a full-service financial counseling and education company based in Franklin, Tennessee, Dave Ramsey calls the file a legacy drawer. It’s not an actual drawer; it’s more likely online, in a personal computer folder or on paper. He says the cover letter is a simple letter stating the purpose of the file folder. It tells loved ones exactly what they will find in the “drawer.”
Your will and estate plan. Include the names of the executor and beneficiaries and say who, if anyone, you want to give your power of attorney — that is, permission to act on your behalf.
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Financial account information. Ramsey says anything with money in it and your name on it should be listed in the emergency file folder or in your “drawer.” That includes account names, numbers, balances, payment dates and login information.
These may include:
- Checking and savings accounts.
- Brokerage, retirement and education accounts.
- Employee sponsored retirement accounts like 401(k)s and 403(b)s.
- Liabilities like mortgages, loans, credit cards and lines of credit.
- Insurance policies like homeowners, auto, disability and life.
- Other directives such as will, durable and medical power of attorney, trusts, living will and healthcare directive.
- Important documents like your Social Security card, birth certificate or deeds or titles.
- Professionals’ names and contact information (medical, financial and insurance agents).
- Emergency contact information for extended family and friends you want to be notified of your death.
- All passwords, usernames and PINs.
Also nice to have
It is helpful to include a monthly budget so your family knows the inner workings of the finances. Make a note of any automated payments and the accounts they’re tied to. Also helpful are tax returns from previous years. They are like having an insurance policy in case you’re audited (and yes, that can happen after you die).
You may also want to add funeral instructions. “Your loved ones shouldn’t have to guess what you would have chosen,” says Ramsey. Be specific. Do you want to be buried or cremated? Is there a funeral home you prefer? What do you want to include in your service—specific songs, speakers, anything loved ones should know?
“You may also wish to include letters to those you love, known as ‘legacy letters,’ to pass on any parting wishes or worldly wisdom,” says Kaphammer.
Plus: ‘It broke me’: Everyone says you need power of attorney, but nobody tells you how hard it is to use
Where to store your folder
While you may think that a safe-deposit box is your best bet, Kaphammer cautions against it. “When a person passes on, the bank restricts access to a safe-deposit box until they receive documents from the estate, including a death certificate and proof of who the estate executor is.”
A better spot to keep this file is somewhere fireproof and hidden but accessible, such as a fireproof home safe or file box. You can also give a copy to your attorney or financial adviser.
Keep the file’s existence on a need-to-know basis. This should include your spouse or partner, an appointed Power of Attorney, or an executor of your will. “You could also leave a sealed note indicating the whereabouts of your emergency financial folder with your attorney or financial professional with instructions to release it to your spouse, power of attorney(s), or executor(s) in the event of a crisis,” Kaphammer says.
“My personal master passphrase [for the financial file] is known to my immediate family members (spouse and one of my children) as well as a brother in another state who I trust implicitly,” says Boehm.
Also see: How to give your heirs quick access to your bank accounts when you die
Update the file annually
Updating an emergency financial file is a final but equally essential part of having one. The care and feeding of your emergency file should include:
- Reviewing the contents.
- Replacing old documents with new ones.
- Updating passwords and usernames.
- Adding additional information or accounts.
Ramsey also suggests setting a reminder on your phone to revisit your legacy drawer or folder at least annually.
“In the event of your death or an emergency, you want your loved ones to be able to access their safety net quickly so they can avoid being in limbo — financially or emotionally,” says Ramsey.
Jennifer Nelson is a Florida-based writer who also writes for MSNBC, Fox News and AARP.
This article is reprinted by permission from NextAvenue.org, ©2023 Twin Cities Public Television, Inc. All rights reserved.
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