Creating a Financial First Aid Kit with Will Doty
Creating a Financial First Aid Kit Show Notes
Everybody knows that life can be unpredictable, and anything can happen at any time. Out of nowhere, we may lose a loved one, fall ill ourselves, or end up living through a natural disaster–and the last thing you want in these trying moments is to be in financial distress.
This is why disaster planning is a critical part of retirement planning. Many people fail to make several necessary arrangements for end-of-life planning before disaster strikes, and it can lead to massive expenses, a conflict that tears families apart, and nasty court battles.
Today’s episode is all about how to create a financial first aid kit. You’ll hear from CERTIFIED FINANCIAL PLANNER™ Professional Will Doty about the documents and resources you need to have ready if you’re dealt with a worst-case scenario event.
We’ll also talk about why it’s so easy to put these planning decisions off and the simple steps you can take to protect yourself in the short term without becoming a full-on survivalist.
In this podcast interview, you’ll learn:
- Why disaster planning is critical from a financial perspective.
- The critical components of a catastrophe plan–and why having just a will is not enough.
- The importance of having a team to help you settle your estate when you lose a loved one.
- Why naming a child as a successor trustee can be a double-edged sword.
- How Will coaches clients to be better prepared for natural disasters.
- “The last thing you want to have happen is to financially be distraught when you’re trying to get through something like your house burning down or the loss of a loved one. You want to make sure that you’re prepared.” – Will Doty
- “Every other year we’re looking at the insurance and every year we’re looking at the taxes because taxes are one of the largest wealth-eroding factors facing people, and they can control those taxes as long as they create that longer-term forward-looking plan.” – Dean Barber
- Podcast Episode 048: Saving Lives and Saving Dignity with Dr. Alan Molk
- FEMA’s Emergency Financial First Aid Kit (EFFAK)
[00:01:00] Dean Barber: Hello, everybody. I’m Dean Barber, Managing Director at Modern Wealth Management. Welcome to The Guided Retirement Show™. Will Doty and I going to talk about being prepared for disasters, events, or unforeseen events, things that can happen. Nobody likes to talk about this, but it’s critical. And as a CERTIFIED FINANCIAL PLANNER™ Professional, that is Will’s role to make sure that everything that could possibly happen has been taken into consideration. We want to make sure you’ve got a game plan in place. Please enjoy my conversation with Will Doty.
[00:01:37] Dean Barber: All right. It’s so great to have Will Doty, CERTIFIED FINANCIAL PLANNER™ Professional here to discuss this particular topic. It’s nothing that anybody really wants to talk about, but we’re going to talk about preparedness for a catastrophic event. That can be a loss of a loved one, a weather-related type of an event, etc. Anything can happen at any given point in time. I want Will to start by talking about why is this critical from a financial perspective.
[00:02:11] Will Doty: A lot of mistakes can happen when a disaster occurs. The last thing you want to have happen is to financially be distraught when you’re trying to get through something like your house burning down or the loss of a loved one. You want to make sure that you’re prepared.
[00:02:30] Dean Barber: When you’re doing a financial plan for somebody, what steps do you take initially to make sure that people can have access to the right documents. Their loved ones need to know who to contact, what’s the plan, and what are the steps involved. I know there are multiple steps and for each person. It’s going to be slightly different but how do you address that?
And I guess another counterpart to that is, how do people feel about you talking about that as part of their plan? Because I think a lot of people think their CERTIFIED FINANCIAL PLANNER™ Professional is all about their investments. So, they’re wondering why they’re being talked to about all this other stuff.
[00:03:08] Will Doty: That’s a great point. It all starts with the plan, right? We have to be prepared for whatever the case may be. When we’re building a retirement plan, we want to think through all the pitfalls that could happen with somebody’s retirement. It’s the same thing with catastrophic events. We want to make sure that people are prepared and they understand what they need to be doing in the event that one does happen.
[00:03:36] Dean Barber: Let’s play out some scenarios here. For example, a retired couple goes on a cruise to another part of the world, and one of them has a heart attack and passes away. Or maybe even worse, one of them has a stroke and is incapacitated and in a foreign country and needs to have care. For the surviving spouse or the spouse that didn’t have the stroke, what types of documents do they need to have at their disposal in a foreign country in an event like that?
[00:04:11] Will Doty: Obviously, power of attorney is a huge piece of it for financial and health care decisions. You need to make sure that you have access to those documents no matter where you’re at in the world. It’s important to have hard copies of those things, but you should also have a digital copy that you can access. With our clients, we have document vaults that we can upload these documents to. Those documents are then accessible on the internet anywhere in the world. You’re ready to go.
So, making sure that you’re prepared in that manner is very helpful. Another important document to have is your emergency contacts. Who does this spouse need to be contacting here in the U.S. for insurance coverage and things of that nature? Having all that stuff in one place is a great idea. And actually, FEMA created an Emergency Financial Aid First Aid Kit.
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You can download it from their website. It’s very in-depth and literally covers every piece of financial information. It’s a great thing to go through and periodically update when you’re doing your taxes. You’re compiling a lot of that information around that time anyway. Just make sure that you have it all there and then everybody knows where it is.
[00:05:29] Dean Barber: This document on the FEMA website is available to anybody without cost. It’s a good idea to download that, fill it out, image it, put it in your document vault so you have it with you at all times. Then, you can say, “Here’s my emergency contact information. This needs to go to my child. This needs to go to whoever.” That way they have access to everything, know the rules and instructions, and are aware of what happens.
[00:05:58] Will Doty: Correct. Yep, I would strongly urge that everybody get a fireproof, waterproof safe for their home to keep their hard copies there. But more importantly, make sure you have a digital copy.
[00:06:15] Dean Barber: Yeah. Where is it at? Not that you’re necessarily going to share everything with everybody beforehand, but you want to make sure that it’s all taken care of. Will and I have both witnessed multiple times where those things weren’t done. They weren’t done properly and it turns into a nightmare.
In fact, I interviewed a guy named Dr. Alan Molk, who’s been an ER surgeon for 40 years, on The Guided Retirement Show™. The episode was titled, Saving Lives and Saving Dignity. He was incensed about how many people just ignore the end of life planning issues. They have no financial powers of attorney, health care directives, or health care powers. They just don’t have anything. What happens is you wind up with siblings fighting over what’s going to happen with mom or dad.
Do you remember the Terri Schiavo case when the parents wanted her to stay on life support? The husband said that wasn’t what she wanted. Well, there was nothing in writing. It wound up into a huge court battle.
[00:07:24] Will Doty: Oh, yeah. It’s human nature. We’re all invincible, right?
[00:07:28] Dean Barber: For sure, especially men.
[00:07:30] Will Doty: Yeah. These things aren’t going to happen to us. It’s easy to put off things like your estate plan or planning for life insurance. But those are important things to have in place.
[00:07:40] Dean Barber: When you talk about risk management and catastrophic events, a loss of a loved one can be considered a catastrophic event. Insurance is a big part of that. Do you need to have insurance? Somebody going into a nursing home is a very catastrophic event. Sometimes that’s even more emotional than a person passing away. How is that going to affect the surviving family members from a financial perspective?
When you’re doing your financial planning, you’re basically assuming that these things happen. We stress test the plan to see what happens financially if something happens. If you’re self-insured, your survivors might be in a little bit of trouble. So, we need to consider finding some insurance to cover these specific needs. That’s just all part of good risk management.
[00:08:32] Will Doty: It is. It’s building a plan and then running all those worst-case scenarios to understand what is going to happen to them financially. That’s how you get that understanding upfront. Then, we can start to analyze and figure out what risks to cover. How do we go about doing that? What’s the most cost-effective way?
[00:08:51] Dean Barber: I know the will and the trust play a very large part in this process. Will, talk to us about where you think the will and the trust come in and how critical is that the people have a will or a trust. And what happens if they don’t? That’s a lot of questions, but let’s go for it.
[00:09:12] Will Doty: Those are all great questions. Obviously, the will is important because that’s your wishes on paper. What do you want to have happen when you pass away? A will is a great thing to have. Everybody needs to have it. But more importantly, make sure that your beneficiary designations are done correctly on all of your assets. That’s something that gets missed far too often, unfortunately.
Sometimes we see it where someone had their spouse on as a primary, but had no contingents. So, what happens in the event that the plane goes down and both spouses are in it? People don’t really think that stuff through. More importantly, depending upon your asset level and things that you’re wanting to have happen when you pass away, a trust can be very vital. That way, your wishes continue to live on with your money, It also puts protections in place for your family members so you can avoid the infighting and things of that nature.
[00:10:07] Dean Barber: I think a lot of people don’t really understand that a will is actually part of a trust.
[00:010:13] Will Doty: Correct.
[00:010:13] Dean Barber: So, a complete trust is going to include a will, health care powers of attorney, financial powers of attorney, health care directives. Your trust is not just a simple document that is a standalone. It includes all those pieces.
[00:10:25] Will Doty: Correct. It’s an estate plan.
[00:10:26] Dean Barber: Right. That flows into other issues where people may be naming their trust as the beneficiary to their IRA. They may not understand what the implications are of the trust inheriting the IRA versus a real person inheriting the IRA. There’s a difference in the tax ramifications and that might affect the beneficiaries.
[00:10:48] Will Doty: That’s a big deal, especially with the advent of the SECURE Act back in 2019. So, if somebody does have special verbiage in their trust for IRAs, they may need to revisit that. It’s not saying that a trust can’t be the beneficiary of a tax-deferred account. It most certainly can, but things have to be done properly so that there’s not a tax nightmare for the beneficiaries.
[00:11:11] Dean Barber: Another thing that happens all too often is that people will get a trust drawn up and they take it and set it on the shelf. It’s a really pretty binder with a lot of words and pieces of paper. Inside that trust, most attorneys list, “Here are your funding instructions. These are your responsibilities now.” Those responsibilities are to retitle assets into the trust to change beneficiaries the way that the titling instructions say to do. But so many times, the individual thinks that they have their binder and they’re done.
[00:011:53] Will Doty: Oh yeah.
[00:011:54] Dean Barber: But if they don’t fully fund the trust, they’ve wasted money with an attorney in preparing that trust. Another factor is maybe they get the funding done, but then they don’t revisit that trust for a decade or two. By the time something happens and the trust needs to be utilized, none of the intents that they want now were the same as what they wanted then. Yet, they didn’t go back and revisit and amend and update that trust. How often would you recommend to review that trust once it’s in place, Will?
[00:12:27] Will Doty: Every other year would be a good housekeeping rule. You should at least review it every three to five years. Not only do your personal situation and wishes potentially change, but laws change. We want to make sure that everything is staying intact and doing exactly what you want to do.
[00:12:45] Dean Barber: So, are you on the attorney full employment committee then? Do you want them to visit with attorneys and pay money that often?
[00:12:53] Will Doty: No. Just a simple review and reading through again will do. Make sure all the players are the correct players. For example, if you list a family member to be a trustee after you pass away, and unfortunately, that family member passes away, you need to make sure that those things are being kept up to date.
[00:13:11] Dean Barber: So, the trust is an important part of it. Wills are part of the trust, the directives, the powers of attorney, the document from FEMA. All that great information makes sure that your risk management programs are in place and you get the proper insurances for the right amounts. What about family meetings, Will? What about meetings that parents should be having with their children to inform them of their wishes? Do you think that that’s important?
[00:13:36] Will Doty: I do. I have a lot of those with my clients. They bring their children in and we just have a round-robin discussion. It’s up to the parents on what to share, obviously. We don’t need to share everything. But for the kids to understand who are all the players and who they need to be contacting, it makes that transition a lot easier for those kids. I know from experience.
[00:14:00] Dean Barber: It certainly does. It was probably 15 years ago when I had a review with a couple who were both 70 years old. The gentleman told me that I was going to be putting up with him for another 20 years. He just had his physical and the doctor said he was in tip-top shape. He said living another 20 years probably would not be a problem.
Three weeks later, his wife called me. Her husband died of a massive stroke in the middle of the night. Her next meeting with me was shortly after his funeral. As sad and unexpected as it was, she said, “You know, Dean, this is probably a best-case scenario.” She said, “I know he’s where he wants to be now. The greatest thing is from a financial perspective is that I don’t have to worry about anything because we had everything in place. Now, I can just spend my time grieving.” To me, that was the power of making sure that that’s done.
[00:15:13] Will Doty: Oh yeah. There’s a lot of power there. And in that way, the spouse or whoever is left behind can focus on the grieving process, not the financial process.
[00:15:24] Dean Barber: And even though there’s still work to be done, I think the greatest thing is that if you’re working with a team of people where we’re going to have people to settle the estate. We have people that make sure that all the Is are dotted and the Ts are crossed. It doesn’t leave that grieving family member out there to try to figure out what to do.
[00:15:48] Will Doty: Correct. About five years ago, one of my clients was unfortunately struggling with brain cancer. They thought it was getting better, but she took a turn for the worst, and we lost her. About six months after she passed, her husband told me that the greatest thing was that he didn’t have to worry about anything financially. He knew that he was prepared from that perspective. He knew that I was going to be there to help walk him through everything and there was no greater peace of mind than that for him.
[00:16:31] Dean Barber: Yeah. It is good. Will said something earlier about naturally thinking that we’re all invincible. We think none of these things are ever going to happen to us until they do. It’s always unexpected. I think part of the reason why people resist planning for catastrophic events is because it’s uncomfortable to think about.
[00:16:56] Will Doty: It is.
[00:16:57] Dean Barber: But because it’s uncomfortable to think about if you don’t address it, then there’s this gnawing sensation that something is left undone
[00:17:05] Will Doty: Correct.
[00:17:06] Dean Barber: And in almost all the cases, there’s one spouse who has that gnawing sensation more than the other. The one spouse says, “We need to get this done.” The other says, “Oh yeah, we’ll get to it.”
I’m so happy that Will brings that up in the financial planning process with his clients because it’s critical. We’ve had people over the years that don’t want to deal with it. You can’t force them. All you can do is explain the importance of it.
As we’re talking about losing a loved one, adult children should be speaking with their elderly parents. Their parents are in their 70s or their 80s. The adult children need to bring this subject up. “What’s the plan? What have you done? Share with me not necessarily your financial stuff but what’s the process going to look like? Who’s going to be in charge?”
As we wrap up the trust discussion, naming a child as a successor trustee can be a double-edged sword. It can be smooth and easy because that child’s there, but can also make for sibling rivalries. It puts a lot of burden on that successor trustee.
[00:18:24] Will Doty: Yeah. Not only the successor trustee, but the executor of the estate. Those are all things that you really need to have conversations about with your family. You should outline that you’re picking these people for these reasons. Make sure that all the kids are OK with those decisions. One of your kids may have wanted to be the executor for some reason and the other kid that you name may not want that responsibility. Having those discussions makes it a lot smoother for everybody.
[00:18:57] Dean Barber: Agreed. Will and I think about that as the financial planning piece of it and having confidence in where you’re at and that things are taken care of in the event that you lose a loved one or one goes into a long term care facility or something like that.
Let’s switch gears a little bit, Will, to other types of catastrophic events that can occur. Obviously, it can be a stroke. It could be a car accident, home burning down, tornado, flood, or any kind of a natural disaster. What are you coaching people to do to plan for the possibility that those types of events could take place, Will? We know death is certain. That’s when we have to plan for, but these other things are not necessarily certain. However, they can occur. If they do, how do you coach people to prepare for those?
[00:20:01] Will Doty: Yeah. Great question. Obviously, with natural disasters, you need to do the research in your general region of the country. What type of natural disasters are there? Are there hurricanes, tornadoes, earthquakes, etc.? Then, you need to have a plan and communicate it with your family. I have three little ones at home, so I need to be have those discussions with them. For example, when tornado sirens are going off, I need to make sure they know what to do and where to go. Where are we all supposed to meet up in the house? How do you communicate during these emergency times?”
That’s something that I think a lot of people don’t really think through, especially now that everybody has a cell phone. What happens when you have a heart attack and you’re at home. If you have little kids at home, how are they going to contact somebody for an emergency? For things like that, you just want to make sure that you think through and make sure that everybody in the house knows what to do when these events unfold.
[00:21:03] Dean Barber: There are a lot of people who call them the survivalists. They have X-number of days’ worth of water bottles, canned goods, or things like that. They have the emergency generator and all the things to survive without power or water.
Some people think that’s extreme. I mean, you’re going to need to get rid of that stuff in 10 years because it’s not going to be any good anymore. You need to do it again. What are your thoughts on that, Will? Should people be really thinking about that and at least having a few days’ supply in some sort of a location in their home, like a shelter or something like that where in case that does happen you’ve got the resources?
[00:21:59] Will Doty: Yeah. I see nothing wrong with it. If you’re in a part of the country where you could be down for a week due to a hurricane or massive snow storm, there’s nothing wrong with having some bottles of water and some canned goods and little flashlights and stuff piled somewhere.
[00:22:22] Dean Barber: So, what else is there to think about as we talk about preparing for a catastrophic event? What else are you coaching your clients on and what are the things people should consider?
[00:22:34] Will Doty: I think the main things are kind of like what we talked about. Make sure everybody understands what the plan is, who all the players are, where you meet, how you communicate. And again, get to some type of document vault in case some catastrophic event does happen. For an example, let’s say a tornado hits and unfortunately, you get hurt. Does your wife know who to call and where to get that information? I think those are some of the most important points.
[00:23:03] Dean Barber: My wife always jokes with me because she pays all the bills and does all that. So, if something happens to her, she thinks I’m not going to know what to do. I figured I know where she keeps everything, so I hire somebody to do it. How about that? But the bottom line is that it’s not fun to address this issue of preparing for catastrophic events, but it’s something that’s critical. There are all kinds of ways that you need to be doing it.
I think the best way to do it is to start with the creation of an overall financial plan that won’t just include your investments. It’s also going to include your taxes, estate plan, and all your risk management. Those are the basic four pillars. A person can start there and not just say to the CERTIFIED FINANCIAL PLANNER™ Professional, “I have the estate plan taken care of, Will.” Or, “Oh, I have plenty of insurance, Will. We don’t need to talk about that.” Or, “I have somebody that prepares my taxes. We’re not going to talk about that.”
What they need to do is back up and look at everything, regardless of whether you think it’s done or whether it’s not done. Most of the time, there are necessary changes to make. Very rarely do we complete a comprehensive financial plan and pat that person on the back and shake their hand and say, “You know what, you don’t need my help because you’ve got everything perfect.” That very rarely happens. I remember one time in my 35 years where that was the case.
[00:24:33] Will Doty: One area that I find kind of interesting when it comes to working with clients is property and casualty insurance.
[00:24:41] Dean Barber: Oh yeah. People ignore it. I mean, people have it but it’s like, do they have the right amount? Are they paying the right premium?
[00:24:46] Will Doty: Yep. A lot of times, those people don’t want to bring that up because they’ve been with their property and casualty person for 20 years. They feel almost like it’s a threat to that individual just to talk about what their coverage is. And really, it’s just about making sure that things are done correctly. We’re not saying that your property-casualty person isn’t doing things right. A perfect example of that right now is with house values shooting through the roof. Are you making sure your coverage is correct? That’s important.
[00:25:17] Dean Barber: It’s all important. That’s why we focus on the review process where every other year, we look at the trust and the estate plan. Every other year, we look at the insurance and taxes. Will and I both know that taxes are one of the largest wealth-eroding factors facing people. They can control those taxes as long as they create that longer-term, forward-looking plan.
[00:25:39] Will Doty: Correct.
[00:25:40] Dean Barber: Well, Will, I appreciate you taking time to sit down and share with our audience what you need to do to prepare for catastrophic events. There are ways that you can get in touch with us. I’ll tell you about those shortly. Will, thank you.
[00:25:56] Will Doty: You’re welcome.
[00:25:56] Dean Barber: Thanks so much for joining us on The Guided Retirement Show™. Also, remember that any of the resources can be found through a link in the show notes. That’s also a location where you can schedule a 20-minute Ask Anything session with one of our CERTIFIED FINANCIAL PLANNER™ professionals. Thanks for joining us.
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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.