The Five Most Important Documents to Have

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Once a year, my father, the founder of Marotta Asset Management, Inc., would ask for an hour of our family vacation to review the contents and location of five important documents to have.

While the ten grandchildren laughed and played in the next room, we would receive a lesson in financial planning through the specifics of our family’s finances.

While our family openly shared specific salary and net worth information, other families consider those figures dark secrets. Having heard too many financial horror stories I recommend our family’s financial openness and suggest an annual review of these five documents as a model for others.

A will

You need a will to direct the transfer of your assets after your death, no matter how “poor” you are. Seven out of ten people don’t have a will, but don’t take comfort in numbers. Six of the seven won’t read this article, and the other three families have finally made a priority of getting a will. Go do your will. The larger your estate, the more complicated the will may be. But it’s time and money well spent. Advance planning can save your loved ones time, frustration and money.

A living will

You need a living will so that someone else can make decisions about your life if you can’t. It also states your preferences for life-prolonging procedures in the event of permanent illness or unconsciousness where your death is imminent. It is sometimes called a “durable medical power of attorney.” A living will ensures your wishes are followed without making your family guess.

A power of attorney

You need a power of attorney to authorize some one to manage your finances if you are sick or disabled. One advantage of a financial planner who manages accounts is that they continue to manage your assets even if you are incapacitated. Unlike a broker who requires your approval for transactions, a fee-only financial planner can be given a limited power of attorney to manage your investments without any financial conflict of interest such as a broker who earns commissions from those trades.

Even if you have an asset manager, however, you should still have a power of attorney to facilitate your other financial obligations if you are incapacitated.

A directory of basic information

You need a directory of basic information for anyone who needs to take over handling your finances in an emergency. You should collect a list of all your assets (stocks, mutual funds, bonds, real estate, loans, 401ks, IRAs, etc.), where they are located (safe-deposit box, former employers, brokerage accounts, etc.), their approximate value, and the names of your professional advisers (tax advisers, lawyers, financial planner, investment counselors, trustees, etc.). Be sure to include the appropriate account numbers, phone numbers and contact information

If you think this information is hard for you to pull together, imagine how difficult it would be for someone else who is asked to fill your shoes in an emergency!

Yearly financial statements

You need a yearly collection of financial statements both for yourself and also for those helping you with financial planning.

Your yearly financial statements should include a net worth statement, an asset allocation analysis, the cost basis for all taxable investments, the past year’s performance, your current income and a copy of the first two pages of your tax return.

This exercise will take some time to complete the first time your do it. However, in subsequent years, the task will not only take less time, but you will be able to compare this year’s total with prior years. That way you can quickly see how you are progressing toward your goals.

Communicating honestly about your finances with your family and putting your estate in order passes on a legacy of foresight and financial wisdom that will help generations to come. And it’s never too late to start.

Photo by Kimberly Farmer on Unsplash
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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)