Fire, flood, or sudden departure of key personnel can all wreak havoc on a business, and CPAs routinely advise business clients to prepare disaster recovery plans. But what about personal disasters? Imagine a client who comes to a CPA for advice after a loved one, perhaps a spouse or parent, has died or experienced an incapacitating illness or injury. How will financial needs, both immediate and long-term, be met? What resources are available? CPAs can go beyond traditional estate planning services and provide assistance to those trying to recover from personal disasters.
Navigating the Aftermath of Disaster
A survivor or caregiver might need a significant amount of professional assistance to put financial and other affairs in order, but have little or no information to start the process. A CPA might need some detective skills to determine what information is needed and where it is located in order to develop and recommend a course of action.
The survivor will need to identify the relevant financial assets of their loved one. If statements for bank and investment accounts are not kept in one central file, then the CPA will have to do some hunting. Past income tax returns, which record interest, dividends, or other income received, could identify investments. E-mail account activity might contain notices from financial institutions. Checkbooks, hard copies of bank statements, or personal computer files could show withdrawals or transfers used to open new accounts. If paper or electronic records are unavailable, contacting local banks directly may be advisable. If the survivor suspects that the loved one has lost track of some assets, it may be necessary to conduct an unclaimed funds search. Furthermore, a CPA should identify incoming financial resources (e.g., pension benefits, Social Security, life insurance, annuities, disability or other long-term care insurance) due to the loved one or any beneficiaries.
In addition to locating assets, a client may also need assistance in determining which bills must be paid immediately (such as utilities, taxes, or current medical costs) and which should be put on a long-term schedule (such as rehabilitative care or funeral expenses). A surviving spouse might not have previously shared in household bill paying or budgeting responsibilities. In such cases, a CPA can provide practical advice, assist in preparing a budget, and recommend further assistance from an investment advisor, if necessary.
Making a Personal Disaster Plan
A proactive approach can help reduce the stress, confusion, and time lost when coping with a sudden personal emergency. CPAs can help clients put together a personal disaster plan to mitigate the consequences of such an event before it occurs. The following sections describe essential steps of a personal disaster plan to discuss beforehand, while the sidebar provides a checklist for implementing the plan.
CHECKLIST FOR A PERSONAL DISASTER PLAN
- Establish a storage location for key documents
- Make a list of important personal contacts
- Arrange for appropriate powers of attorney (e.g., financial, healthcare)
- Create a list of financial institutions and accounts
- Document essential medical information
- Determine immediate caregivers for minor children and other dependents
- Plan temporary care for pets
- Document online activities, including:
- Log-in IDs and passwords
- Auto-pay arrangements
- Social media accounts
- Electronic business transactions
Storage location for key documents.
Create a storage file for key documents, such as wills, real estate deeds, marriage licenses, and other important records. Electronic storage should take advantage of a personal information management software package; there are many available, and some are free. Physical storage options can be as simple as a three-ring binder or a manila folder, or as secure as a fireproof safe or bank safe deposit box. Regardless, the key document storage file should be kept in a single location and contain all necessary information, identified and organized, and revised or updated when needed. A designated representative (such as an agent with power of attorney; see below) should have easy access in case of the client’s unavailability, including any password, key, or combination required.
List of important personal contacts.
Certain people will need to know as quickly as possible if an emergency strikes. This may include family members, a supervisor or co-workers, neighbors, and close friends. For each contact, include the name, phone number and email address. Indicate which category (e.g., family member, co-worker) each contact belongs in. Consider prioritizing individual contacts, noting the type of information each should receive.
Power of attorney.
If a client is incapacitated—unable to make decisions or direct personal affairs—an agent can do so using a power of attorney (POA). The agent will be able to pay bills and manage legal and financial concerns until the client can resume these tasks. An agent should also be authorized to make decisions regarding medical care and treatment (a healthcare POA). If a client is uncomfortable with having a financial agent be privy to private medical records (or vice versa), two different people can be appointed.
A POA is a binding legal document, so an individual must be mentally competent to sign one; for this reason, arrangements should be made before misfortune strikes. Furthermore, the agent is a legal proxy and has complete authority to act in the individual’s place, and thus should be absolutely trustworthy. Before executing a POA, the prospective agent should understand the individual’s wishes and be willing to accept the responsibility. A qualified attorney can help prepare and properly execute POAs in accordance with the requirements for the state of residence and discuss roles and responsibilities with any potential agents.
Finally, an agent must be able to produce the POA document in order to take charge of the individual’s affairs. After both parties have signed the POA, an individual should keep at least two copies in the key documents file and give each agent a copy so that she can act without delay in case of emergency.
Financial institutions and accounts.
In order to handle an individual’s financial affairs, an agent must know what resources are available. CPAs should advise clients to make a list of the financial institutions they deal with, along with all of the accounts kept with each one.
Healthcare information.
This should include the name and contact information for the client’s primary care physician and health insurance plan, as well as medical allergies, current medications, and their dosages. All information should be reviewed and updated regularly, as well as whenever changes are made.
Care for children or other dependents.
If the client has minor children or other dependents, plans should be in place for their immediate and longer-term care. The client’s will may specify a choice of guardian for these loved ones, but their immediate needs still must be addressed. Minor children will need a place to live and someone to oversee their schooling and medical care and pay any fees for tuition or other activities. If an individual is responsible for a dependent relative in a care facility, the appointed caregiver should know that and be ready to deal with any needs that arise.
Pets.
If the client has a pet, its care will need to be planned for as well. A short-term caregiver—perhaps a neighbor or friend who lives nearby and can stop in regularly to care for the pet—should be designated. A legal agent can make more permanent arrangements just in case. Any caregiver will need a list with the pet’s food and medications, along with the veterinarian’s name, address, and phone number. A caregiver also may need other pertinent details, such as where the dog’s leash is kept or how much food to give the goldfish. If the client prefers a boarding facility, the contact information for it should be included. Some animal shelters provide temporary foster care; if this is a desired option, emergency arrangements should be made and the shelter’s information should be on the list.
Online activities.
People use the Internet to conduct all kinds of activities, such as online banking, social media communications, or even running businesses. A designated agent should have the following information in order to administer online activities:
Log-in IDs and passwords.
A recent article in The Washington Post pointed out that, for legal purposes, most states do not treat digital accounts like physical documents, and a POA or other legal representative who does not have ID and password information may not be able to obtain account access from providers (Caitlin Dewey, “What happens to your online life after you die? Delaware has some suggestions,” August 20, 2014, http://wapo.st/1AyyoTP).
A list of IDs and passwords is a key document and should be included in the safe storage file described above. It should include the log-in information for all email accounts (work and personal), as well as any online accounts used regularly, such as banking, bill paying, investment, or retirement accounts. Log-in IDs and passwords for social media accounts should also be on the list, even if the client’s computer or smartphone connects automatically. Password management software applications exist that can keep such a list electronically; many support mobile devices, and some are even free. If a client uses a password management program, then the log-in information for that program should be saved in the key documents file. Finally, any passwords required to boot up or unlock a client’s computer or cellphone should also be included in the key documents file.
Auto-pay arrangements.
Many people have their monthly mortgage, car payment, or payments for other services deducted automatically from their bank accounts. The agent handling the client’s financial affairs should be aware of all such arrangements so that finances can be managed appropriately. Again, such information should be saved in the key documents file.
Managing social media.
Dealing with inactive social media accounts can be tricky. For example, Facebook may take steps to “memorialize” an account when it receives what it believes to be a valid report that a person is deceased, but its procedure does not specify that such a report must come from a verified family member or executor (https://www.facebook.com/help/contact/234739086860192). A hospitalized user whose account is memorialized due to a mistaken report will lose the ability to log in or change settings or content. This can be avoided if someone else has the ability to log into and monitor the account.
Other social media companies have different approaches. Twitter deactivates an account only upon receipt of documents proving that the requestor has legal authority to represent the user, along with a copy of the account holder’s birth or death certificate (http://www.thedigital-beyond.com/2014/04/what-happens-to-your-twitter-account-when-you-die/). Google, in contrast, offers a feature called Inactive Account Manager, which allows the account holder to direct what should happen to the account after a prespecified period of inactivity.
E-business activities.
Many individuals conduct professional business online—for example, buying and selling items on eBay, or writing articles for a blog. If so, a client should provide detailed instructions on how such an ebusiness should be handled in case of emergency and which parties should be contacted in reference to online obligations. If a client uses PayPal or a similar service, the accounts and log-in information should be included in the key documents file.
Be Proactive
Unfortunately, CPAs cannot prevent death or serious illness from wreaking havoc in the personal lives of clients and their loved ones. But they can help clients be better prepared for disaster when it strikes. This includes near-term help in the form of locating resources and identifying financial issues that need attention, as well as long-term support in the form of tax or other professional advice to address changes in circumstances.
It is important to be proactive: the checklist provided in the sidebar offers a framework that CPAs can build upon with clients to put plans in place for dealing with critical financial and other issues in case of emergency.
