Use a financial contingency plan example like this one to put your finances in trustworthy hands if you cannot handle your affairs yourself

Having a financial contingency plan will let someone you trust take charge of your finances and investments if you can’t handle them yourself. However, it’s best to focus on finding someone you trust thoroughly, and giving that person as much latitude as possible.

The alternative—leaving fixed instructions—introduces a random element that can only hurt you. After all, fixed instructions (such as “If I get sick, convert all my holdings into T-bills”) won’t add to your wealth. But they may turn out to be wholly inappropriate, and whoever you put in charge won’t be able to do anything different. We provide more information on a financial contingency plan example below.

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Consider the time horizon of your heirs to benefit from a financial contingency plan example

If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs, it makes sense to invest at least part of your legacy on their behalf. That is, invest based on their time horizon, not yours.

For instance, if your heirs are in their 40s, you should hold at least part of your portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age.

If you hold your money in T-bills for the last few years of your life, it will generate a minimal return after taxes—you may actually lose money after accounting for taxes and inflation. After your death, it may take months or longer to settle your estate.

After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced as investors. They may have passed 50 by the time they get around to investing in an age-appropriate fashion. Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a few decades later, in retirement.

Use a financial contingency plan example that avoids putting a limit on what your heirs might earn

As for selling everything when you learn you have a terminal illness, guesswork figures prominently in any estimate of your lifespan. If your doctor says you may only have six more weeks, he or she will probably need to add, “but you could live another one to three years or more.”

Here’s the problem: After you sell, your money will earn less than, say, 3% a year at current low interest rates. But if you expect to pass most of your money on to your kids, then you really should invest with their objectives in mind. Why limit them to earning less than 3% a year from the time you get the bad news until your estate is distributed, possibly years later?

Most investors are better off to give a medical power of attorney to their most trusted family member. This power of attorney can only be exercised if your doctor agrees you are no longer mentally competent. In addition to investment and financial decisions, this power of attorney also covers medical decisions, such as choice of treatment, or when to discontinue treatment. It’s something to discuss with a lawyer.

If you don’t want to burden a single family member with this responsibility, then you might want to empower a group of, say, three people—chosen from among family members, your doctor, lawyer, dentist, accountant, family friend, or clergy, say—to act for you on majority vote of the group.

There is no neat solution to this problem that works in every case. However, any reasonable arrangement that involves family members and trusted professionals is unlikely to go too far wrong. But you can’t say that about pre-ordained decisions that may come into effect just when they can do maximum harm to your finances.

Recognize that incorrect beneficiary information can cause huge headaches for your heirs

In addition to transferring shares, it’s a good investing strategy to periodically check (and update if necessary) beneficiary information on your registered accounts, including RRSPs and TFSAs.

You’ll want to pay particular attention to the form that names, or changes, the beneficiaries of your life-insurance policies. Often, you’ll name a primary beneficiary (generally your spouse), and a secondary beneficiary (often your children) if the primary beneficiary is incapacitated or dies at the same time as you.

We once came across a case where the insurance agent mixed up the primary and secondary beneficiaries. As a result, instead of going to the bereaved spouse, the form said the eldest child was to get the proceeds of the policy.

Of course, most children will do the right thing in a case like that, but you have nothing to gain by putting them to the test. That’s why you’ll always want to be sure the form is correctly filled out before you sign.

Bonus tip: Use our three-part Successful Investor approach for you overall portfolio

1. Hold high-quality, mostly dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

What is involved in your financial contingency plan?

What is the biggest mistake you’ve avoided in your financial contingency plan?