Survivor Financial Plans
Preparing survivors financially. Death is expensive. In addition to the hard costs of a burial or cremation, there is the cost of replacing the income and/or the services that the deceased provided for the family. There may also be costs to “settle” the deceased’s estate or to aid grieving family members. These and other unforeseen expenses make the creation of a “what-if” financial plan critical for the surviving family members. In our support groups we hear time and again of surviving family members having to move or drastically change their lifestyle because they didn’t have a plan that allowed them to stay financially in control of their future. For this reason, financial security is one of our four pillars of preparation.
In this week’s tip, we outline an important exercise to go through to make sure that your family is ready for when that time comes. If you have a spouse or partner, you’ll need to go through this exercise twice – once for if you die first, and a second time for if your partner dies first. This will help you account for the differences in income, insurance, assets, and services that you each contribute to the family to create the survivor financial plan.
The Budget - Expenses
When creating a budget for your plan, start with the expenses. There are four categories of expenses you might consider. We encourage you to be liberal and incorporate your dreams into this exercise. You can always cut back later. Also, remember that your partner will not be with you so think about how that might change how you budget. For example, if you’ve always wanted to take a scuba diving vacation to Australia, but that didn’t interest your partner, make a plan for it here. Also, if you think you might move to be closer to your family or if you’ll need childcare to go back to work, add those expenses into the budget.
Immediate Expenses – These are the expenses that come immediately following death and may include the burial or cremation, a memorial or funeral service, medical/grieving expenses, etc.
Annual Living Expenses – These are your normal month-to-month, year-to-year living expenses that include housing, food, clothing, transportation, utilities, vacations, birthday/holiday gifts, hobbies, taxes, etc. If the surviving spouse would like to not work for a while to focus on grieving and/or supporting the kids, you need to account for that. For example, if the surviving spouse prefers to be able to stay at home for two years before going back to work, then you need to multiply the annual living expenses budget by two.
Savings and Investments – Part of your budget should include emergency savings, retirement savings, investments, expenses to create or adjust your own end-of-life plans, etc.
Monumental/Milestone Events – When considering these expenses, you’ll want to multiply how much you allocate by the number of times you might host and pay for these events. For example, three kids = three weddings. Other events may be graduations, religious events (e.g., baptisms, bar mitzvahs, etc.), church or humanitarian missions, births of grandchildren, etc.
The Budget - Income
The next step is to consider all of your savings and present and/or future income streams. As you consider these sources, remember liquidity. As an example, if you’re banking on the equity of your home to pay for the surviving spouse’s living expenses after one of you dies, remember that you can only tap into the equity by selling the house or taking out an equity loan. One requires moving the other requires debt. Is that what the surviving family would want? Following are common forms of income for surviving partners:
Life insurance payouts
Savings accounts
Investments
Future earnings of surviving family’s work
Social security benefits
Etc.
Balancing the Budget
The next step is to compare the grand total from your expense column and your income column. If your expense column is greater, then you have two choices. You can either cut or reduce items from your expense column or find ways to add more to your income column.
This is a great exercise. It may open your eyes to your needs. Also, no judging as you work with your partner and discuss his or her wishes or desires after you’ve passed on. You will each grieve differently and neither is right or wrong.
