My wife and I split the chores of every day life based on our interests and abilities. Because of this split, and my obviously enjoyment of all things financial, I manage our investments. Under normal circumstances this is great, but what happens if something were to happen to me? How would my wife know where our money sits or what to do next? Well, that’s where this post comes in, with a letter to my wife to be opened upon my untimely demise.
Providing Advice to a Spouse In Case of Death is Important
The importance of such a letter cannot be understated. In the case of the death of a loved one there would be a lot to consider in a short period of time. Not the least of which would be what to do with life insurance and how to structure things going forward. I realize this type of post has been done before. Still I needed to redo my letter due to some significant changes in our lives recently. I figured you might benefit from reading it.
So without further ado:
We’ll cut the sappy stuff since I’m posting this in a public forum. I’m sure I’ll write you and the kids something more about the joy you bring me separately. For now true to my obsession with money, and because I know it is definitely not your thing, I will outline to you some important things to consider upon my passage to the next plane of existence. Consider this my contribution to get you started, I’m sure along the way you’ll figure out ways to make it even more successful.
First, life insurance. We have a hefty life insurance, both from my work and from our private insurance company. Our private company will owe you 10x our annual expenses. My work will owe you either 1x or 4x our expenses depending on if I passed on business travel. This amount is tax free, so the whole amount is yours. Finally work should pay you out all my RSUs and ESPP money. This money will be heavily taxed though. In any case when combined with our existing 28x of annual expenses you should be able to pay off the mortgage and be set to never work again.
I know deep down though that your pride will lead you to continue to work. So to facilitate that ultimate realization and change in direction I wanted to advise you of what to do with this windfall as well as the existing accounts.
- Leave all the existing accounts as is until things have settled down. If you need immediate income utilize the savings account and a small portion of the life insurance policy. Leave the other accounts until you get a handle on things. You can find the general setup of the accounts in my money map post and you already know the institutions involved. You will need to contact them and assume ownership using my death certificate.
- There are 2 exceptions to the above. One is my 401K which our employer will force you to take a distribution from. This is specific to our company and not a rule. As we always said, my company has poor benefits. Any way, just transfer this amount to your solo 401k and you won’t pay taxes on it. Invest it per the percentages I mention in item 4. The Roth accounts should be able to stay as is.
- The second is my lump sum pension. Roll this money into the solo 401k as well. The only downside is you will have an extra form to fill out at tax time. As you’ll see a bit later you should probably hire an accountant for advice and taxes so it will likely not matter
- Take 1x our expenses from the insurance money and put it into savings to support you for a year while you figure out what you want to do next.
- Pay off the mortgage with another portion of the insurance. I know you stated you would sell the house and move into something smaller with my passing. You can still do it but you should wait until things settle down. If you payoff the mortgage then when you move out you will have more time to work on selling or renting it without paying the existing mortgage. Financially you should be in a position where this will not be a problem and default is not an option.
- Take the remaining money and split it 20% in a cd ladder, 60% in total stock market index fund, 10% in international index fund, and set aside 10% for a down payment on your next home. If you change your mind on moving you can always invest the 10% in the total stock market if you do not need it.
- After you’ve figured things out, and if you sell the house, pay off the new house mortgage and invest the remainder along the same ratios as above.
- When it comes time to use the money you can utilize my withdrawal strategy. With the exception of the age 55 easy withdrawals you can start the Roth conversions any day you want. I might recommend getting a good accountant to advise on the right amounts to keep your tax amounts low. Everything else you need to know I’m sure the blog, or failing that, your dad can give you advice.
- For the kids college, pay it out of income and regular savings. You should have enough that this will not be a concern.
The above should allow you to make work optional. What you and the boys decide to do with that option is entirely up to you. Make sure to do plenty of travel with the boys since I know you love too. Give them both a hug for me and remember, this is not goodbye but until we meet again.
What instructions would you leave for your significant other around finances?