Ralph Bovitz, CPA, PFS

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Disaster Planning - 101


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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