Day 4 of the Legacy Notebook series
Now that we have our passwords managed (I just heard ‘mischief managed’ in my head as I typed that – thank you J.K. Rowling), let’s move on to the financial section of your legacy notebook.
The first item to tackle in the financial section is gathering your banking information.
Create a summary listing of all bank accounts
Use this worksheet (excel) or this one (word) to make a list of your bank accounts and some basic information on each account. The idea here is to create a one or two-page document that would give ‘your people’ the basic picture (accounts open, type of accounts, beneficiary info, etc.).
Confirm your beneficiary designations on each account – don’t skip this step!
You’ll see that the worksheet has a section to list primary and contingent beneficiaries for each account. Following through on this item is so, so important. When I filled out the summary worksheet for our accounts, I ‘thought’ I knew how we had set up the beneficiaries on all the accounts. I checked with our banks to confirm our beneficiary designations. Turns out, my memory isn’t all that wonderful and I was quite surprised by the beneficiary setup (or lack thereof) on some of the accounts. Take the time to confirm with your bank so you know how things will be handled at the time of your death.
One of my more disappointing takeaways from this project is learning that the online bank we have used for years (CapitalOne360, formerly ING Direct) doesn’t give account holders the option to designate beneficiaries on the accounts. Super annoying. And rather embarrassing since I’ve been operating under the assumption that I had set these accounts up with beneficiaries when we first became ING Direct customers in 2004. Imagine my surprise when I called customer service recently to ask about the process for updating our beneficiary designations and learned the bad news. Boo, hiss.
So, I am on the hunt for a new source of ‘high-yield’ savings accounts. High-yield…where’s the sarcasm font when you need it? All our CapitalOne360 savings accounts are joint accounts, but it still feels unwise to have the bulk of our liquid assets in accounts that would be frozen in our estate for weeks or months if we died at the same time. I hate the idea of our chosen guardians having to provide for our kids out of their own pockets while our estate gets sorted out. No one needs added stress and financial responsibilities during an already life-altering transition.
Understand what happens to your account at the time of your death
Individual bank account with one owner:
If you have a single owner checking account, the account is typically frozen at the time of your death and will be distributed according to your beneficiary designations (or pay-on-death instructions) after the bank has received a death certificate. That process will typically take several weeks. If there is no beneficiary designation, the account will become part of your estate and the circus that is probate.
Joint bank account:
If you have a joint bank account (an account with more than one owner), the surviving owner on the account continues using the account after your death. The surviving owner becomes the sole owner of the account. This is really helpful in terms of your family having uninterrupted access to the funds in the event of the death of one account holder.
For instance, if you and your spouse have a joint checking account, that account can still be used by your spouse to buy groceries and pay bills after your death.
Please keep in mind, a joint account is different than an single-owner checking account with an additional signer. There is a lot of confusion around this point. It’s common for an aging parent to add their adult child as an authorized signer on an account thinking that this will give their child access to the account after their death. Not so. As a signer on an account, your privileges on that account cease when the account owner dies. If you want a loved one to have full access to one of your bank accounts immediately upon your death, they need to be a joint owner on the account. However, please understand that this means that the ownership of the account and all the funds therein become the property of the surviving owner when the other owner dies.
Potential disaster in the making:
Mom is a widow and has two adult children. She adds her unmarried son as a joint owner on her bank account and instructs him, upon her death, to split the money equally with his brother. Simple, right? Not always. At the time of mom’s death, the account she owned jointly with her son becomes 100% his property. He isn’t legally bound to do anything with the remaining funds in the account. The account is now owned solely by him. He can keep all the money, regardless of any earlier promises made to his brother. This is one example of how family disputes over money begin, even when the parties have the best of intentions.
In this example, if he distributes half the funds in the account to his brother per his mom’s wishes, that distribution is technically a gift made from him to his brother. If the distribution amount exceeds the annual gift limit established by the IRS ($14,000 in 2016), the son making the gift will be required to file a gift tax return disclosing the gift and may be subject to gift tax on the amount (or will need to use a portion of his lifetime unified credit to avoid paying gift tax on the transaction). This is likely not what mom had in mind when she added her son as an account owner.
Today’s Action Items:
- Complete the banking info worksheet (excel version or word version) and add it to your binder
- Confirm the beneficiary designations on each of your bank accounts <–please do this one!
- Make any desired changes to your beneficary designations (usually is a quick one page form from the bank)
- Print out your most recent monthly bank statement for each account and add them to your binder
- Add any other docs you have from the initial account set up or beneficiary designations to your binder
- Grab another one of those celebratory beverages – woohoo!
thanks for reading,
P.S. Go here to find the full series
Stronger Wallet’s Legacy Notebook series information is intentionally general in nature and covers typical scenarios. You may have special circumstances that need to be considered. Always consult a trusted advisor before making big decisions about your financial legacy. Feel free to send me questions along the way at lesley [at] strongerwallet .com.
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The guide includes everything you need to get started: a cover sheet and divider pages to set up your notebook, an overview of each topic, checklists, worksheets, and writing prompts to guide you through the process.