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Succession Planning of the Family Chief Financial Officer (CFO)

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.

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.

Insurance

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.

Balance Sheet

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.

Login/Password Information

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?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 18 comments… add one }
  • Value Indexer November 15, 2010, 11:07 am

    I’ve thought about this recently as I’ve been arranging life insurance. At the moment the biggest question would be what to do with the proceeds to replace my income, and as other assets grow they’ll add to that (and eventually replace the insurance). Fortunately I’m not involved in the day-to-day stuff in the first place and the insurance/assets would provide enough cash to keep that going at first, so the only open question is long-term management.

    My investment strategy is based on index funds but the asset allocation is subjective and variable because I read a lot about finance (historical and modern) – in fact I just started my new blog to talk about it. What I would like to do is leave instructions for a much simpler strategy – say a fixed allocation between a few of the more reliable markets (rebalanced once a year on a fixed date), or a few potential allocations to use for different situations, along with guidelines about what can be expected as a sustainable income from the assets.

    Preserving the capital and getting a small return would be a good outcome here, and I know that can be done with a very simple strategy – if I can make sure that it’s followed (I know family support on both sides may well include pressure to invest differently), that should cover everything that can be planned for.

    I also have a business that would complicate things quite a bit, but between employees and a peer group where I get advice there would be enough information to keep it going or pass it off. However none of my plans account for any further income or liquidation value from the business since that’s an unknown.

  • Echo November 15, 2010, 11:47 am

    I really like the idea of an encrypted USB or a DVD with all of your financial “secrets” on it. Our household is completely unbalanced when it comes to finances, as I take all of the responsibility and my wife is not even the slightest bit interested. I’m not really sure the best way to get her to take an interest in it…as it would be for her own good if something should happen to me.

    Since I’ve started blogging at least she reads my articles every day…I think :)

    One thing to mention though FT, and that’s if your personal finances are rather complex…wouldn’t it be best to have an accountant advise your wife over the business income and Smith Manoeuvre should anything haoppen to you?

  • FT FrugalTrader November 15, 2010, 11:59 am

    @Echo, that’s one area where I haven’t really thought through, that is business succession planning. But you are right, as operating the business can be a bit complex for a newbie, it would be best for someone to advise her.

  • ldk November 15, 2010, 12:52 pm

    Though both of us are actively involved in our account management, we are aware that if something were to happen to one (or both) of us, it is a good idea to have a consolidated record of our accounts for our kids and parents.

    Our sophisticated solution was to type up a list of account numbers with passwords, etc. and a contact list (accountant, lawyer, broker, etc.). We made a couple of copies and gave one to my parents (to keep with their wills and other financial docs) and one to my (23yr old) son.

  • Tim Landry November 15, 2010, 1:17 pm

    Include Disability Insurance, Critical Illness Insurance and Long Term Care Insurance as well. With all due respect, these are slightly more important than automobile insurance. Stroke? Alzheimer’s? Coma? I could go on for hours but I hope you get my point

  • bs November 15, 2010, 1:20 pm

    I’d be careful about a USB key or DVD. The information may not be there anymore when it’s needed. Typical DVD’s/CD’s you buy have a shelf life of as little as 5 years before the information on them begins to degrade (much different than commercially printed DVD’s). USB keys also tend to have their information degrade after about 5 years if it is not rewritten. I believe you can get archival grade DVD’s that are supposed to hold their data for 100 years. Of course, if you update the data and replace it annually, that isn’t much of a problem.

  • Bob November 15, 2010, 5:00 pm

    Very similar, I have a Word document that lists all the accounts, logins/passwords, etc. The file is encrypted on my PC (Note: do NOT use Office’s built-in passwords, they are not secure).

    A paper copy goes in to the safety deposit box at least once per year, and I give a copy to my Mom for safe keeping whenever I visit.

    Note: most DVD’s do not fit into a small SDB at a bank – they are too wide.

    I also wrote a “what I would do if I die” for my wife – focusing on the broad areas she should look at – such as consolidating accounts (she thinks we have too many); getting advice from trusted people; asking for help disposing of things; and not rushing into decisions (such as selling the house).

    I feel confident that between this and my will, everything is as under control as it can be. Recently I went through a family member’s death with no records whatsoever – not fun at all.

  • BadCaleb November 16, 2010, 12:43 am

    Plan A was to use a USB stick but I also was concerned with retrieving data in the future. I have stored data on CDs only to have the disk unreadable at a later date. Plan B is to simplify as much as possible so it can fit on one sheet of paper and stuffed in an envelope then stored in a SDB. Fortunately, my wife is an accountant so everything is always in order so she would probably be fine w/o it.

  • Sampson November 16, 2010, 12:29 pm

    great timing on this post, my wife has been bugging me to do this for some time now.

  • Michael James November 16, 2010, 1:39 pm

    Thoughts of my mortality have been one of the drivers behind my attempts to simplify my finances. The closer I can get it to autopilot the better.

  • saveddijon November 16, 2010, 1:55 pm

    Interesting question: my wife is technologically unsophisticated. I fear that she may not be able to use any encryption program reliably in the event I should pass away.

    Given the previously mentioned longevity issues with USB sticks and optical media, what is the recommended strategy?

    I’m thinking along the lines of giving my wife access to the safety deposit box and making sure she knows where the key is. Then you just write everything out on paper and stuff it in the box.

  • Sarlock November 16, 2010, 2:08 pm

    I recently went through the same mental exercise and realized that my family was quite vulnerable financially if I were to die. I created a sheet of paper with all of the various accounts we have plus a simple outline of how they are all associated with one another and put it in our SDB. Still, it is complex and I worry that my wife would be unable to make sense of it all and properly manage it, so I have enlisted the help of a family member who knows finances fairly well to assist in this case.

  • Broker November 16, 2010, 8:14 pm

    Working as a full service broker, I see these cases all too often and all too late. There has usually been a family CFO that manages all the investments/strategies/finances, something tragic happens, I have seen many a family CFO pass, then the investments get forgotten about, and start to be liquidated with out any strategy. That’s when I usually get a call from a client referring me their friend who is in this mess. I go in and try and reconstruct the scenarios what the spouse was doing before, usually with out insurance, as I find many DIY’rs lack the financial knowledge to build their own financial plan or at least put it down in writing, and properly plan for disability, illness, or loss of life. Even when it is in writing they can be so complex, that if one month is missed( and always is upon passing), the ‘plan’ has to be reconstructed or abandoned.

    Yes it is fun to DIY and save those 50 bps a year, but it’s really not worth it to your family to leave them the headache of solving your Rubik’s cube of a financial plan.

    Many people are seduced by complexity, and rarely come out any further ahead in the end.

    Life insurance is key to a solid plan, many buy enough to cover the mortgage, what about lost income, child care, education, TAXES, wife or spouse taking time off to re-coup or not go back to work to take care of kids…etc.

    Taxes is the big one, I recently had to unwind a mess of an estate from a DIY’r, large investment portfolio 2MM, very low ACB <1MM. Family had a tax bill of $400,000. No life insurance, had to liquidate the investment holdings but had no other option, or re-mortgage the home to pay taxes and keep investment portfolio so they could life off the investment income. It was a sad state of affairs, and the comments afterwards are always….we should have come see you sooner, every time.

    I then have about 4 referrals from each case. I keep it simple, and costs down, no more than 2%, under 1.5% in many cases, and all my clients know they can sleep at night should something tragic happen.

    It helps me sleep at night also.

  • Sri November 16, 2010, 11:37 pm

    Agreed with comments about the medium of storage. USB Keys & CDs/DVDs can be flakey & unreadable after some time. Also if they’re encrypted, your survivors may inadverently be locked out of accessing them even if they were readable.

    I suggest a safety deposit box & having the info printed on paper – preferably using good quality paper & toner/ink so that the text doesn’t fade or otherwise degrade (and use a clear font for the purpose – don’t want to confuse zeroes and “Oh’s” in your passwords!).

  • Brian Poncelet November 17, 2010, 1:18 am

    FT,

    Who wants to lose a million dollars at the end of the journey for their family? (sorry for the pun!) I am seeing a teacher who will have a pension that pays $55,000 plus a year, indexed to inflation for life. One of her concerns is when she passes away the pension will not be past on to her kids (three). She is 65 now and of course, now someone is explaining to her how pensions really work. The solution… get life insurance (not the rental stuff). When you work 35 years and you have kids you don’t want to see it disappear.

    Or if you have real estate that you want to keep in the family (CRA is a partner), this becomes a problem. Or a company that has grown in value over time taxes can destroy the value at the wrong time.

  • Jungle November 18, 2010, 12:41 am

    Good post topic. I will be sitting down with my wife to do the Nov net worth update so she can see and login to all the accounts.

    We already have the passwords written down and locked in a fire proof safe.

    Last week we drove past Questrade’s head office, I told her, “honey, if anything ever happens, we have some money invested through that brokerage company” lol as I point to the office tower.

  • Brian Poncelet, CFP November 26, 2010, 12:02 am

    FT,

    Here is an interesting story from the National Post

    http://opinion.financialpost.com/2010/11/24/three-in-ten-dont-have-life-insurance/

    From:
    Jonathan Chevreau November 24, 2010 – 10:50 am

    Read more: http://opinion.financialpost.com/2010/11/24/three-in-ten-dont-have-life-insurance/#ixzz16Ls7PmcC

    Three in ten Canadians lack life insurance, according to a TD Insurance poll released today. Not surprisingly, six in ten don’t have the more esoteric critical illness insurance.

    Actually, it’s impressive that 70% DO have life insurance, considering there are so many single people who don’t really need it. Of the 31% who lack coverage, TD says 40% don’t think it’s necessary, 23% admit they “probably should” have it and 23% say they just can’t afford it. In addition, 33% worry they aren’t adequately protected by their insurance policies.

    Brian

  • cannon_fodder December 12, 2010, 3:09 pm

    This is a good article. Anyone have any templates (Word or Excel for example) that they’d like to share which would be ideal for capturing all of the essential information?

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