In most families, one spouse handles the finances. Often times, the other spouse either has no clue what is going on (our situation until recently), or may have a decent feel of the budget, but otherwise isn’t involved with the long term plan. Unfortunately, whether due to divorce, death, disability or decline, eventually the spouse who has been managing the investments for the past 10-50 years or more will be unable to do so for the other spouse.
Having a written succession plan for your investments is a great way to relay your investing beliefs to your heirs, simplify your investments, and put your spouse and children in a good position to continue to success that you have achieved. The succession plan should contain or reference a road map of the key things you want your spouse or children to know about investing, whether it is this blog, a book, or a combination of resources. Just keep it short and to the point. Perhaps the succession plan is the name and number of two or three trusted advisers you would want your spouse to choose from, and specific instructions for your spouse to make sure the adviser follows.
Warren Buffett, for example, has stated on multiple occasions that he wants his investments, once in his wife’s possession, to be 90% in a Vanguard fund tracking the S&P 500 and 10% in a Vanguard short-term treasury bond fund. He stated that he believes that such an allocation with minimal costs and no adviser will be superior to the results obtained by most investors. If you keep the allocation simple, then you can focus your spouse’s efforts on understanding Roth IRAs versus Traditional IRAs, required minimal distributions and other bigger picture and equally important concepts.
Even better than having a fancy succession plan is to start working with your spouse now on understanding the important concepts of financial planning and investing. Your spouse doesn’t necessarily need to understand everything, but the more he or she understands now, the better off everyone will be if he or she has to step up and serve as the primary spouse responsible for managing your financial future.
Keep in mind that your succession plan for your investments can be put in your will or trust, but that may create significant unintended consequences. What if your will or trust follows the Warren Buffett plan described above, but then the S&P 500 ceases to exist in a few years, or new research comes out that makes it obvious that a different index is highly preferable (which is arguably the case now)? Your trustee or executor would possibly have to petition the court to amend the document, which is an unnecessary burden and expense. It is much more preferable to have a written succession plan for your investments that is separate from your estate plan, and to make sure your wife and kids know both where the plan is and have the resources available to help execute it. I plan on laying out a sample succession plan in a future article that you could perhaps use as a template for your plan.