Life Events Guides - Unexpected Events

Expect the unexpected
There's nothing harder to plan for than the unexpected. Many times the emotional impact is hard enough to handle without financial uncertainties. The key to successfully surviving these life-changing events, financially at least, is to anticipate hard times, shore up your financial situation now, and give yourself some breathing room.

Build an emergency fund to get you through the rough times. You'll need three months' living expenses as a minimum, more if your industry is subject to prolonged layoffs.

Set money aside every month. But unlike retirement savings, keep your emergency savings fairly liquid, in a savings account or a money market fund. Hopefully you will never need it. But if you do, you'll be glad it's there.

Disability
Humans are amazingly adaptive. But sometimes it takes a long time to recover from unexpected circumstances. Car crashes. Heart attacks. Random acts of violence. Back injuries. Cancer. These can have long lasting impacts on our ability to perform our jobs and earn money.

Your employer may offer sick time and a few weeks of short-term disability. But what if you still can't work after that? Half of all mortgage foreclosures are the result of long-term injuries or illness.

You can protect yourself from the financial effects of these situations with long-term disability insurance. Most people have car insurance, yet 60% of working adults in this country don't have coverage to protect their most valuable asset - the ability to earn a living.

Are you covered?
Check with your employer, you may already have long-term disability coverage. Many employees do and don't even know it. If you do, make sure you know how well you're covered. You don't want to wait until you really need the benefits to discover gaps in the coverage.

Does your benefit calculation include Social Security payments? Your policy may assume you will get Social Security disability payments in determining how much to pay out in case of a claim. But Social Security will only pay benefits if your disability will last more than 12 months or lead to death. There is a waiting period of five months before you qualify, and then another month before you receive benefits. So even if you have short-term disability coverage for the first 12 weeks, there will be several months of potential unpaid time.

Social Security disability covers you only if you are unable to perform ANY job, not just your current job. So even if you are used to sitting behind a computer or talking on the phone all day, the government will expect you to take any job you can get. Think of some of the jobs out there you might be expected to take! They may be much more physically demanding or lower paying that what you are accustomed to.

Your policy
Policies vary considerably from one to another. Make sure you know how well you are covered so that you can prepare around your policy. If your benefits are not great, you should save up more in your emergency fund.

Benefit Amount
Disability insurance pays only 60% of your current income. It's designed to be enough to cover your base expenses without offering incentive for people to abuse the system. If your employer pays your premiums as an employee benefit, the disability payments you receive will be taxable. If you pay your own premiums, your disability payments will be tax-free.

Term of Benefits
Check for how long your benefits will be paid. Some policies will cover you for only two years. Others provide lifelong benefits. Most policies are somewhere in between. You can lower your premiums by reducing the term of your benefits.

Premium
The amount you (or your employer) will pay for your coverage depends on so many variables that it's impossible to list them all here. But some of the main factors are your age, your gender (on average, women live longer - longer benefit payments mean higher premiums), your job (how dangerous is it?), your income (how much will they have to pay out?), your medical history and your lifestyle.

Non-cancelable
If your policy is non-cancelable, you're in luck. Once you have been approved, they can't cancel your policy or raise your rates unless they stop covering your entire job class.

Guaranteed Renewable
Not quite as good as non-cancelable, they can't cancel your policy (again, unless they stop covering your entire job class), but they can raise your rates.

Own Occupation
This is an important designation on your policy that determines what it means to be disabled. "Own occupation" means that you're disabled when you're unable to perform your current job. "Any occupation" means that you're disabled when you can't perform any job. Obviously "own occupation" is preferable but it's also more expensive.

Elimination Period
The elimination period is how long you'll wait after you are disabled to start receiving benefits. All policies have at least a 30 day waiting period before they start paying you benefits. Otherwise, if you missed one day from work, they would have to pay you for that day. But other policies will wait even longer to start paying - 60, 90 or even 120 days. The longer the elimination period, the lower the premium. To determine how long an elimination period you should get, figure out how long you could go without earning income. If you've saved up three months of expenses, take a 60-day elimination period (Benefits won't start until after you've been disabled for a month. Add a 60-day elimination period and you're at three months.) If you have a claim, file it as soon as possible. That will start the elimination period and start your benefits faster.

Residual Benefits
Some policies will offer lower amounts for less than complete disability. The wording of the policy can sound very morbid - 20% for loss of an eye, 40% for loss of a limb and an eye, etc.

Loss of Job
A job, as the source of income, holds a very important place in most people's lives. It represents your family's comfort and security, and provides you with a sense of self-esteem. The loss of that job, and the income it provides, can throw lives into chaos.

First steps
Negotiate the best severance package you can from your former employer. If it was a layoff or amicable departure, get letters of reference from those you worked with, especially supervisors. Also, get documentation of projects you worked on that will highlight your skills to a potential employer.

Deal with the emotions. You may feel angry or bitter. Let those emotions flow but don't dwell on them. Harboring those kinds of emotions can take valuable energy from finding a new job.

Go to the unemployment office right away. Receive your entitled benefits until you get back on your feet. There used to be a stigma attached to being unemployed and, as a result, receiving an unemployment check. But as the economy shifts, more and more people are finding themselves out of work for a period of time and unemployment is becoming an expected stage of life.

Find compatriots. One of the hardest parts of losing a job is losing the day-to-day interaction with coworkers. If your former employer let several of you go at once, try to meet up with those people for lunch once in a while. They can understand some of what you're going through. And it will take away some of the loneliness that can accompany unemployment.

Temporary work
If finding a permanent job in your field looks like it might take a while, consider applying to a temp agency. Employers ask them for workers. They provide your services for an hourly rate. Then they pay you - obviously not as much as they received for your services. The employer benefits from reduced recruitment and screening costs and the temp agency benefits from charging high prices for your services.

So what are the benefits for you?

Quick Money
Often you can collect a paycheck after only one week of work. If you're in need of some fairly quick cash, temping isn't a bad way to go.

Flexibility
You can work this week and not the next. Or if you need to work nights to leave your days free for interviews, a temp agency can accommodate your schedule.

Interaction
Having a job, even temporarily, will get you out of the house and interacting with real people. It relieves the "cabin fever" that results from staying in the house every day with no place to go.

Experience
Temp work allows you to work in a variety of jobs, though often not in very skilled roles. But having the exposure to a variety of industries can be a positive asset for future employment.

Permanent Employment
Often if you are performing well at a temporary job, they may offer you "permanent" employment. (Although no employment is permanent it seems.)

Actual Benefits
Some temp agencies, if you work for them long enough, do offer benefits such as health insurance, paid holidays and vacation time. OK, you know there has to be some disadvantages. Here they are:

Undesirable Jobs
Some companies hire temp workers to do jobs that their full-time employees don't want to do. But most times they hire temp workers to perform jobs that won't last long.

Sporadic and Undependable
One week you're working, another you're not. It's hard to get solid financial footing when you never know if and how much you will be paid.

There are some temp agencies that specialize in specific fields, such as IT or engineering. If you can find an agency that specializes in your field, it just might be a great opportunity for you.

Looking for a new job
One of the best ways to deal with unemployment is to find a new job! But easier said than done. There are four main sources of job leads:

Classified Listings
Start getting the Sunday paper every week, or look at the classifieds on the newspaper's Internet site. Look through all the classified listings, not just where you think your type of job would be listed. You can get some great ideas on different positions that may utilize your skill set. Also, look through trade magazines that relate to your industry. Some employers will advertise in industry publications to reach a more targeted audience.

Headhunters
Pay someone to find you a job! Since they don't actually get paid until they find you a job, they have a large incentive to search.

The Internet
There are many Web sites with large job boards on which employers advertise open positions. Also, check the Web sites of companies in your field. They often have a page devoted to openings in the company.

Networking
It's not what you know; it's whom you know. Attend industry events. Put the word out on the street. Get your name in front of as many people as you can. You never know who has a friend who's looking to hire someone just like you.

Death of a Spouse

The death of a spouse can be devastating. Sudden losses can be even harder. If your spouse managed the majority of the financial responsibilities, even just paying bills can seem overwhelming. But you can work your way through it. It is manageable.

Try not to make any long-term decisions right away. Take your time. Emotional times are not the best times to make decisions.

Paperwork
Gathering the proper paperwork is the first step in settling your spouse's affairs. Start with the following:

• Death Certificate
  The death certificate will be needed for many financial procedures you will encounter. You should request several copies from the funeral director or county health department.
• Insurance Policies
  These will help you determine benefits you are entitled to.
• Marriage Certificate
  If you can't find your marriage certificate, you can usually get a copy from the courthouse of the county you were married in.
• Birth certificates
  - for Dependent Children.
• Certificate of Discharge from the Military
  If your spouse was in the military, you may need his or her certificate of discharge to collect benefits.
• The Deceased's Will
• Complete List of all Property

Many of the documents you need may be held in a safe deposit box. If you can open this safe deposit box before your spouse's death, take out all the contents of the box. Some states seal the boxes after a death, even if the box is registered in both your names. If your spouse has already died and the box is sealed, consult your attorney about getting court permission to access the box.

Get your finances in order
If you receive a life insurance benefit, save that money. Put it in an interest-bearing account such as a savings account or money market fund. But keep it liquid. You may need it.

Make sure you have health insurance. Call your spouse's company to see if you're still covered and for how long. If you're not, get medical insurance right away.

Use the paperwork you gathered to claim the following:

Life Insurance Benefits
Most likely, the company will pay the proceeds directly to the named beneficiary in either lump sum, fixed payments or as interest payments on a larger amount. It may take several weeks for you to receive payments. If your spouse is named as your beneficiary on your life insurance policy or retirement plans, you should take this time to name another beneficiary.

Social Security
Widows are eligible for a $255 death payment designed to help pay for funeral costs. You may also be eligible for survivor's benefits, depending on your age and if you have any dependent children.

Employee Benefits
Your spouse may have had life insurance, a 401(k) plan, vacation or sick pay, and other benefits to which you're entitled. Contact the human resources director at your spouse's workplace for a list of benefits. If your spouse was employed by a large company, you will still be eligible for health insurance under COBRA legislation for 18 months after your spouse's death.

Veterans' Benefits
If your spouse served in the military, contact Veterans Affairs. You may be eligible for burial expenses, money toward a plot or headstone, as well as disability benefits if your spouse already was receiving such payments. VVeterans are also eligible for free burial in a national cemetery.

Miscellaneous Benefits
If your spouse belonged to a credit union, a labor union, the American Legion, a college alumni group, or other organizations, you may be eligible for insurance coverage or assistance programs.

Wills
A will is a document that states what will happen to your assets upon your death. It will also determine who inherits your property, who will be your children's guardian and who will be the executor of your estate - the one in charge of your affairs after you die. If there is no will, all these decisions are made according to state law.

The executor of a will is in charge of gathering the deceased's assets and distributing them according to the terms spelled out in the will. He or she is also responsible for:

• Paying funeral bills, taxes, and life insurance
• Obtaining death certificates
• Making funeral arrangements and helping with burial arrangements and the obituary
• Dealing with creditors
• Handling property sales and appraisals
• Calling the life insurance agent and requesting claim form
• Making a claim for retirement benefits
• Filing federal, state and local tax returns
• Notifying banks, insurance companies, brokerage firms of the death
• Taking inventory of assets and liabilities
• Updating insurance policies and changing beneficiaries
• Having the will admitted to probate by going to the registry of wills
• Opening a checking account for the estate -- this requires a taxpayer identification number
• Paying all liabilities

Testamentary letters Whereas wills provide for distribution of larger assets like homes, cars, and bank accounts, testamentary letters designate who receives smaller items such as china, family photos, and jewelry. This letter is a handwritten document, and it should be referenced in the will. Many states recognize a testamentary letter as legally binding, but it is probably a good idea to have your letter signed by a witness.

Trusts With a trust, you can leave your money to a beneficiary and still have control over how the money will be put to use. It lets you designate how and when the beneficiary receives the funds. For instance, you can require that the funds be invested conservatively and that the beneficiary not gain access to the funds until he or she is a specific age. Also, a trust will protect the money from creditors if it provides that funds cannot be taken from the trust to settle a beneficiary's debt.

Living trusts are trusts that are set up and funded while the creator is still alive. When going through the process of settling the estate, the assets in a living trust do not need to go into probate court, saving beneficiaries both time and money. Whereas a will is a public document, a trust, in contrast, is a private document and may therefore be more difficult to challenge.

Living trusts can be either:
Revocable - Revocable living trusts permit changes to the trust until the time of death.
Irrevocable - Irrevocable living trusts cannot be changed once set up. They are usually established to remove property and its growth from the estate to save estate taxes and to provide for beneficiaries.

Taxes
This is just a brief introduction to some of the tax issues facing you. Taxes can be quite complicated and you should consult a professional tax advisor for more help.

Within nine months, you are required to file an estate tax return if the assets of the estate exceed the threshold for taxability. Your spouse's estate will not be subject to estate taxes if its net worth is less than $1 million. That threshold will rise each year until the complete repeal of the estate tax in 2010. Taxes, which can be as high as 50 percent, must be paid on any amount above the threshold amount. You also are required to file annual income tax returns reporting any income earned by the estate.

The Unlimited Marital Deduction allows you to avoid estate tax completely if your spouse has left everything to you in his or her will and you are a U.S. citizen.

You must file a final federal and state income tax return for your spouse on income earned that year up to the date of death. As with your return, this is due by April 15th. You can file a joint return as long as you do not remarry prior to the end of the year he or she died. If you have a child still at home, you can use the joint tax rates to figure your income taxes for two additional years.

Some smaller details
Review your will and make adjustments to reflect your new situation. You'll probably need to change who will inherit your assets and you may need to decide on a new executor. Change accounts and jointly held property into your name including credit cards, deeds, etc. You do not need to go through the process of applying for new, individual credit card accounts.

A new financial picture
Once the immediate financial matters are taken care of, you need to settle into your new financial situation. Creating a budget is the first step toward financial security.

Create a budget by writing down your expenses to find out where your money is going. Pull out your credit card bills and bank statements from past years as guides to your spending habits. Then estimate how much your new bills will be. Be sure to include expenses for entertainment, clothing and other major expense categories. Put in some money for savings. It may take several months to fine-tune your budget.

Now estimate your monthly income. Don't include potential income - only income you are sure to receive. Make sure you know which benefits you will be receiving and for how long.

Check your budgeted expenses against your income. If you have extra income, you should try to save even more. If your expenses are greater than your income, you need to trim your expenses until they match your income.