How to Simplify Your Finances and Why It Can Be Life Changing for Loved Ones

How to Simplify Your Finances
Elliott Appel, CFP®, CLU®, RLP®

Elliott Appel, CFP®, CLU®, RLP®

Welcome! I'm Elliott, the founder of Kindness Financial Planning, LLC, a fee-only, fiduciary advisor located in Madison, WI working virtually with widows and caregivers across the United States. When I'm not helping people live their ideal life, I'm often cooking for my wife, playing tennis, or hiking.

Last Updated on February 26, 2023

We all eventually die. 

Sometimes, you know when it is coming. Other times, it is a surprise. 

The grief and transition is never easy. Emotions come in waves. Nobody told you the endless paperwork you would have to do. Just when you think it’s done, something else pops up. 

We plan for many things in life – birthdays, graduations, anniversaries, retirement, births, and more. 

But, what about death? 

How many of us plan for death? 

Not many, I’d guess. 

And, if we do plan for death, it’s usually about funeral arrangements or who is getting mom’s favorite necklace. 

It’s rarely about the finances, which is a pity. 

It’s important to simplify your finances. Making it as easy on your heirs as possible is a wonderful gift. Instead of contacting multiple banks, they can contact one. Instead of completing different forms with each financial institution, they can complete forms at one. Instead of tracking down old accounts, they can grieve. 

I know preparing for death, whether it is decades away or weeks away, is never easy; however, it can be life changing. I’ve seen what it’s like to die with unorganized finances and a family unaware of where assets are. I’ve also seen it simplified, and the family knowing exactly where the assets are. 

Under both scenarios, it’s difficult, but one comes with more headaches and prolonged difficulty while the other does not. 

Let’s talk about why it’s important to simplify your finances, actionable steps you can take to simplify, and a question for you to consider. 

Why It’s Important to Simplify Your Finances

Before we talk about how to simplify, let’s discuss why it’s important to simplify your finances. 

It’s important because it:

  • Saves time
  • Reduces the likelihood of mistakes
  • Increases the likelihood everything is completed in a timely manner

There are many steps that must be taken when someone dies. Much it depends on how accounts are titled and the rules of the state in which you live, but generally, any accounts in someone’s sole individual name (bank, brokerage, etc.) need to be transferred to an estate account where the executor can distribute the funds after the estate is settled. 

If an account is titled as joint tenants with rights of survivorship with another person, it can usually be transferred directly to that person. If an account is titled as community property, a portion can go to the surviving person, but the decedent’s half usually is transferred to the estate account and is distributed at a later date. 

For retirement accounts, the beneficiary designation will dictate where the assets go, but heirs will still need to open new accounts and request distributions. 

Now, with how many financial institutions do you have accounts? 

Add up your bank accounts, brokerage accounts, retirement accounts, and any others. 

If you are like many people, your money may be spread across multiple brokerage custodians and banks. If you were to pass away, your executor is going to have to contact each custodian, determine their process for distributing your accounts, and complete paperwork. 

Think about how much hold music they will listen to, how much wrong information they may be given (it happens more than you think), and the wasted time – all the while grieving your loss. 

What if you limited your accounts to one brokerage custodian and one bank? 

Imagine how much easier that would be for your heirs. They would only need one or two points of contact, one process to follow, and less paperwork. 

I’m a financial planner, and even though I’ve helped process accounts at death for many people over the past decade, it’s almost never a simple, straightforward process. It’s complicated by grief, brain fog, and all the other things someone must do at death. 

Simplifying your finances removes some of the burden of death. It won’t go away entirely, but making a few phone calls is better than making ten. Trying to find the right person to speak with in one organization is easier than finding that right person in five organizations. Calling to ask about how to fill out forms is simpler if it’s the same company as opposed to multiple. 

The more complicated your finances, the more likely it is for a mistake to be made, too.

If you have multiple retirement accounts and need to distribute a Required Minimum Distribution (RMD) before the end of the year, but pass away, your executor may miss distributing it if they are unaware of the account or are busy processing other aspects of your estate. The penalty for not distributing an RMD could be 25% or 10% of the amount that should have been distributed.

For example, if your RMD is $50,000, and it’s not distributed, the penalty could be $12,500 or $5,000. It’s possible your complicated finances could cause your heirs to inherit less money. 

Even if everything is simplified, it can still be difficult. Many people feel lost and overwhelmed at death. There is enough going on without the administrative burden of settling financial accounts. Sometimes that means it takes longer to process everything, but sometimes that means someone ends up doing nothing, which can be problematic down the road. 

You want to make it as easy and simple as possible for the loved ones you leave behind. 

I’ve seen simplified finances and complicated finances at death. It can be life changing for your loved ones if you have simplified your finances before death. 

Now that you know why it’s important to simplify, let’s discuss what you can do to simplify your finances. 

Actionable Steps You Can Take to Simplify

Please don’t think of these steps as something that should be done overnight or even in the same month. I’ll be the first to acknowledge it takes time to simplify, usually at least a few months. 

It can be done faster if you are in a rush, but a few weeks is probably the fastest I could see it being done, which is why it’s important to start early and chip away at it over time. 

Consolidate Accounts

One of the best things you can do is to consolidate accounts with as few financial institutions as possible. If you have bank accounts with multiple banks, consider consolidating your accounts to one bank. 

I can see the reasoning behind wanting two banks in case one account is hacked or becomes inaccessible. This needs to be weighed against your health and time it takes to work with two banks. 

If you are still fairly healthy and your life expectancy is more than 10 years, I can see wanting two banks, but I’d personally still be comfortable using one if I were an older adult. If you are sick and life expectancy is less than 10 years, I favor one bank for simplicity. 

Besides bank accounts, I’d consolidate among custodians and retirement account providers. For example, if you have accounts with Charles Schwab, Fidelity, Merrill Lynch, Vanguard, and more, I’d consider moving everything to one custodian. This may not be possible in all situations, but to the extent you can consolidate, I would. 

Not only will it help save time when you pass away, it also makes tracking investments easier. 

If you have an old 401(k) account, it may make sense to transfer it to an IRA at the custodian you choose. 

Also, if you have multiple bank accounts with the same bank or multiple brokerage accounts with the same custodian, I’d try consolidating down to one account.

For example, if you have 3 brokerage accounts with the same titling, I’d move it to one account. Even that small change will minimize the amount of paperwork that needs to be completed when you pass away. 

Consolidating your accounts not only will help simplify your life and make it easier, it will be appreciated by your heirs. 

Notify People Where Your Assets are Held

Now that you have consolidated accounts, tell your executor or other important people in your life where your accounts are held. 

There is no point in burying the treasure in one place and then not giving your important people the map! 

The best example I’ve seen of this is creating a document that you print and give to your loved ones showing them exactly where an account is located, approximate balances, purpose behind the account, and who to contact if you pass away. 

This is a great gift because it’s a simplified map of where everything is with explanations of how each account functions.

If you have an old annuity, you can explain why it exists and the options if you pass away. If you have a bank account, you can explain which account pays the bills. If you have a brokerage account, you can explain your investment philosophy. 

If you don’t have the time to explain everything, write down all your accounts with account numbers. It’s at least a good start and a time saver. Instead of tracking down old statements, waiting for statements to come in the mail, or potentially searching years later for assets escheated to the state, they will at least know what exists. 

Paying Bills

Once accounts are consolidated, paying bills becomes easier. I’ve seen people have multiple bank accounts for different types of bills. It was a nightmare to track and if something happened to that person, their significant other was going to have a very hard time understanding where money needed to be when. 

As much as you can, set up autopay. Paying bills is not fun. It’s also not easy during health issues. You have enough going on that remembering to pay bills manually probably should not be where you are spending your time and energy. 

It only takes one health issue for someone to forget to pay a bill, which causes further frustration. One simple way to ensure you have enough money in your checking account to pay bills without worrying about how much money is in the account is to hold two times your monthly expenses in your checking account. 

If everything is set to pay automatically from one account, your system keeps functioning even if you pass away. There is no immediate crisis of needing to find every single bill and pay it on time. Plus, with your bills consolidated to one account, it’s really easy to see which bills exist in case a surviving spouse or family member wants to cancel one or more. 

Review your Will and/or Trust

Although simplifying your accounts is important, it’s equally as important, if not more important, to review your Will or Trust documents. 

Even if you simplified everything else, if your Will is not updated to reflect current laws or your current wishes, the simplifying may not matter. You may create more issues for your survivors. 

As you review your documents, ask yourself the following questions:

  • Are the important people in the right roles? Do I have back up executors and power of attorneys?
  • Has it been more than five years and/or did tax laws change? 
  • Did I actually update the titling of my accounts to reflect what is in the Will or Trust?
    • You don’t want to be the person who creates a trust, but does not fund the Trust with the appropriate assets. Or, you don’t want to be the person who forgets to update their beneficiary designations to match their Will.
  • If I have a transfer on death or payable on death account, is that on purpose? Will it interfere with the plans in my Will or Trust? 
  • Are my jointly titled assets properly titled? If they are Community Property, should they be? If they are Joint Tenants with Rights of Survivorship, should they be? 
  • Do I have beneficiaries on the appropriate accounts? If not, do I understand the tax ramifications of not having them? 

I can’t stress enough the importance of reviewing your documents every few years. I see far too many people who have a Will or Trust from long ago and do not know what they say anymore. This is one of the most important documents when you die. 

Final Thoughts – My Question for You

Nobody knows when our last day on earth will be. If we did, it would be much easier to plan for. 

Since we don’t know, it’s really important to set your loved ones up for success when you pass away. The grief and paperwork that accompanies death is hard enough. 

Everyone should take proactive steps to make it as easy as possible to track down their money, retitle accounts, and settle an estate. 

Remember, you don’t need to simplify everything overnight. You can start by consolidating one account or setting up automatic payments for your bills. Make a goal of taking one step a week and in a few months, you might be surprised how much simpler your finances are. 

I’ll leave you with one question to act on. 

What one step are you going to take to simplify your finances? 

Disclaimer: This article is for general information and educational purposes only and should not be considered investment, financial, legal, or tax advice. It is not a recommendation for purchase or sale of any security or investment advisory services. Please consult your own legal, financial, and other professionals to determine what may be appropriate for you. Opinions expressed are as of the date of publication, and such opinions are subject to change. Click for full disclaimer.

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