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By Ralph Bovitz, CPA, PFS
When a disaster strikes,
attorneys are often among the first ones called. And although
attorneys are accustomed to listening and then supplying answers and
documents, listening takes on a new meaning in a disaster. Clients in
this situation are frequently fearful and grief-stricken over their loss, be
it a person, home or business. By being an attentive listener and
addressing their financial concerns, you can help them calm down and feel in
control of their lives.
Encourage survivors to explore
the services or benefits available from the Social Security Administration,
the human resources office of the decedent's employer and their own
insurance companies. Remind your client to inform their creditors,
including credit cards and mortgage companies, that they were affected by a
disaster, and that some additional time may be needed to make payments.
Most creditors will not object. Some business people keep both their
business and personal records at their office. When a disaster
destroys business sites and results in someone's death or destruction of
records, the survivor is going to need information to reconstruct their
financial life. The Internal Revenue Service, by supplying prior year
tax returns, can be a useful resource for identifying information that may
have been lost. Banks can provide copies of cleared checks and deposit
slips that may give the client some leads to their financial information.
While substantial sums of
money may be on their way from insurance companies, the client may need cash
to cover immediate necessities. If the surviving spouse has not been
involved in the financial affairs of the family and is not aware of the
location of funds, you can help by simply recommending that the client visit
banks believed to have been used by the family and ask them to search their
records for all possible family accounts and safe deposit boxes.
Survivors should also be encouraged to contact the
decedent's employer. One employer in New York offered $1,000 to each
employee unable to return to apartments enveloped by smoke and ash after the
World Trade Center towers collapsed.
Regarding life insurance
benefits, often the person who was insured is the only one who can identify
the correct insurance company. Attorneys can help in this situation by
helping the survivor search likely spots to find clues about the life
insurance company. For instance, have survivor check decedent's
papers, address and telephone books for names of insurance companies or
agents. Contact such sources whether or not you believe a policy is
still in force. Review canceled checks, if available. A review
of old tax returns may reveal interest income from insurance companies.
Finally, you may also contact
the state's insurance department for a list of companies licensed to do
business in the state where a policy may have been purchased. Likely
companies should be supplied with decedent's name, date of birth, Social
Security number and asked to search their files for possible policies.
These steps may also be taken to identify policies covering property damage.
Once life insurance proceeds
are received, attorneys should remind their clients that they need not put
the money "to work" immediately. Encourage clients to deposit such
funds in easily accessible savings accounts. Someone suffering from a
tragedy should not make significant investment or financial decisions for as
much as a year after the death of a loved-one. Also watch out for the
client who equates the life insurance proceeds as if it were the decedent,
and wants to leave the money untouched, out of respect or fear of "losing"
the decedent again. An appropriate investment plan should be
implemented to realize the benefits intended by the life insurance proceeds.
Alert survivors to their tax liabilities,
responsibilities and tax reduction measures. Provision should be made
for possible estate tax liabilities arising from receipt of life insurance
proceeds. Although life insurance proceeds are not subject to income
tax, under certain circumstances estate taxes may be imposed. Also,
filing amended returns for the prior year are permitted where a substantial
property loss in the current year can be carried back to a prior year for a
tax refund.
Care is necessary in handling
decedent's individual retirement accounts and employer retirement plans.
For example, avoid paying the 10 percent penalty tax from early withdrawals
by a survivor who is under age59.5, who rolls such accounts into their own
name, by leaving the account in the name of the decedent and making
necessary withdrawals.
A survivor's existing
investment portfolio may need to be revised in the context of the new
situation, such as different priorities regarding their child's education,
retirement or the purchase of a second home.
Revisions in trust, wills and
powers of attorney need to be addressed, also. If such documents don't
exist, clients should be encouraged to prepare them, especially where young
children or dependent parents are involved.
Finally, attorneys need to
alert their clients to the unpleasant fact that there are those who will
attempt to take advantage of the victims of a tragedy and offer one scam or
another. Just reminding the client of that prospect may help them
adjust to his or her new reality.
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