Create a “Red File” to Prepare Your Heirs for What’s Coming

In last week’s Family Legacy Planning email, the focus was on creating an in-house family education program to train your heirs. All too often, an inheritance lands in unprepared hands. Giving your heirs the gift of advance preparation improves the odds that they’ll know how to handle the inheritance when it comes their way. We wrote before of a football field where the quarterback hurls a pass to the other end of the field, where receivers are standing around without a clue what’s coming or what to do with the football when it arrives. The quarterback is Generation One, the football is the inheritance, and the receivers are clueless future generations. Unless you prepare your heirs, the odds are high they’ll fumble the football.

Part of preparing heirs is to also leave them a “Red File.” A Red File is a roadmap containing critical information to guide the family through a loved one’s incapacity, estate administration, business succession, and creation and continuation of a lasting legacy. The Red File covers the items missing from even the most carefully crafted legal documents. Your will and other estate documents don’t contain items like key contacts, passwords, caregiving wishes, and heartfelt reflections. The process of preparing heirs includes providing them this information so they won’t have to go fishing for it after you’re gone.

Many put off this task, assuming they have time to take care of it later. However, we all know that people in seemingly excellent health can die quickly and unexpectedly. For example, the leading cause of death in the United States is heart disease. For two-thirds of women and one-half of men who die from heart disease, their FIRST SYMPTOM WAS DEATH—not chest pain, not discomfort in an arm, and not shortness of breath. Make it a goal to create a Red File this summer.

Click on this link for The Blum Firm’s Red File checklist, containing the following four sections:

  1. Centralized File of Personal Information: Passwords, contacts, listing of assets you own, location of assets and documents.
  2. Plan for Incapacity: Who will provide care, will they be compensated, where will you live, favorite TV shows, movies, colors, foods (don’t make your caregiver guess).
  3. Business Continuity Plan: Your will says who will own the business, but not who will manage it. Give your family management succession guidance to facilitate the transition for the day WHEN (not IF) you are gone.
  4. Legacy Plan: A Red File is the ideal place to document the “heart” side of your estate plan. Provide information on ancestors, obstacles they overcame, meaningful memories, lessons learned, values, and goals for the family.

After preparing a Red File, be sure to update it periodically. Also, tell your loved ones where they can find it. It can be handwritten or electronic, but be sure they know the password so they can open it.

Marvin E. Blum

An entry from Marvin Blum’s “Red File”—Favorite Dessert: Apple Pie.