Now that’s a fancy title for a fairly simple concept. With a recent comment about term life insurance, it got me thinking about my mortality again. As the family Chief Financial Officer (which you probably are as well), there is a lot of financial information stored inside my head that my spouse most likely knows nothing about. In our family, the financial responsibilities are fairly imbalanced where I look after the majority of the finances which is where succession planning is especially important.
My biggest concern is that if I were to pass away, financial login/passwords, portfolio locations, investments and strategies would be lost as well. How do we mitigate this risk? The first step, of course, is to have a rock solid Will that makes my spouse the beneficiary of financial assets. Next, the idea I have is to put as much information as possible in a digital document saved on an encrypted USB key or DVD and hidden in a safety deposit box or home safe.
This document is still a work in progress, but from my ideas thus far it would be similar to company financial statements with some extras.
Income and Expenses
In this section, there would be a list of all income streams, expenses, along with amounts and dates that explains expected payments. Income stream details include salaries, non-registered investment income like dividends, business income and child care benefits. Expenses include all recurring bills, like mortgage/utility/car payments/phone/insurance, along with other expected expenses throughout the month. This provides a bigger picture that leads into Cash Flow.
This section will contain instructions with a graphical map of how cash flows in the household. This will include the accounts where income flows in, where expenses are paid from, and any regular cash transfers that occur between accounts. This section will also include which bank accounts that investment accounts are connected to and a map of how and when contributions are made. One area of our finances where this is already created is with my leveraged investing strategy, check out the Smith Manoeuvre Money Flow diagram.
This one is a biggie as payout is due upon death. We have arranged our life insurance benefits to be enough to pay off debt, provide education for our children and provide some cash flow to the surviving spouse. Having said that, it’s important to know who the insurance is with, the amounts and contact information. We have life insurance with our work and private term life with a large Canadian insurer.
In addition to life insurance, details about home and automobile insurance should be included here. Coverage, premium and the company that holds the policy.
One benefit of documenting my financial journey is that my assets and liabilities are printed online with my monthly net worth statement. The balance sheet indicates all assets and liabilities. Assets may include property, investments, cash where liabilities are primarily debt owing.
Having all the information is great, but every account has it’s own login and password information which needs to be documented. Below is a sample template of the details that may be included.
Financial Institution Summary (per institution)
- Accounts (chequing, savings, RESP etc.)
- User name and password
- Purpose of each account and how money flows in and out
- Portfolio contents
- Fees, minimum balances
Plan Going Forward
Perhaps among the more important sections in the document is the plan going forward. If the spouse isn’t involved with day to day finances, what is he/she supposed to do with all this information? The ideal situation is that there is a trusted family advisor that can be referred to. However, I believe that a plan should be indicated for consideration. For example, as mentioned earlier, how should the insurance proceeds be used to ensure the family is financially secure? Should portfolios be left alone, or reallocated to produce cash flow? If there is a family business, is there a succession plan in place?
If you are the family CFO, what are your plans for passing on financial information?