The Risks We Overlook

I feel comfortable saying most people are aware that death or disability will affect their finances or the finances of the loved ones they leave behind. They may underestimate the impact or fail to take the necessary steps to mitigate these threats, but, at the very least, they recognize it’s a risk.

Yet, there are other risks that are often overlooked, and while the results may not be as catastrophic as losing the ability to work (or worse), they can still upend a solid financial plan. Here are a few of them:

Co-signing a loan: You may have been asked or tempted to co-sign a loan. While it seems like a small thing, you’re exposing yourself to significant risk by doing so. If the primary borrower is unable or unwilling to make payments, you, as a co-signer, are forced to use your hard-earned cash to pay down the loan. If you’ve already co-signed a loan there are steps you can take to have yourself removed, though the ease (and cost) of doing that depends on whether the loan is in good standing or not. Sadly, it’s fairly common for a co-signer to bear responsibility for a loan: according to a 2016 survey, 4 in 10 became responsible for the loan of a primary borrower who stopped making payments.

Purchasing a car for a child and not changing ownership when they reach adulthood: There’s nothing wrong with purchasing a car for your child, though there can be something wrong with keeping that car in your name once the child reaches adulthood. That’s because if they are in an accident where they are at fault, you can be held liable as the vehicle’s owner. So, at 18 or 21 (depending on our home state) It’s best to change ownership to the adult child. Yes, this means the car is theirs and they can do what they want with it, but the reduction in personal liability is worth it.

Adding a parent or child as joint owner of a bank or investment account (or, even worse, the deed to your house): This is fairly common, especially as people age. The thinking is that it gives a loved one access to an account in the event of incapacity or makes the transfer of ownership easier when someone passes. Yet, depending on the size of the account, it may cause gift tax issues or make the account subject to the claims of creditors from both parties. A better solution is to name a power of attorney who can manage the finances if you can’t or to establish a trust that names an alternate trustee in certain situations.

Not having your child name a health care agent when they turn 18: You may not realize that once your children reach legal age of adulthood you no longer have authority to make medical decisions on their behalf. Unless, that is, they name you as their health care agent. It’s recommended to do this when your child turns 18 or heads off to college but there’s no age at which the importance of naming a health care agent goes away.

Not having an umbrella liability policy: This extremely affordable insurance policy provides additional liability coverage over and above the limits of an auto and homeowners policy. At a minimum, you should consider purchasing a $1,000,000 policy, though more may be necessary depending on net worth, occupation, how many people in the household are driving, etc.

You’ll notice that all of these risks can be avoided or offloaded with little-to-no-cost. For the most part, they only require wise decision making and an eye towards the future, two things Beacon Wealthcare is all about.

 

Ryan Smith
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Born and raised on the North Shore of Massachusetts, I moved to Raleigh in 2011 to marry my wife, Emily. We have two kids, Jack and Gwen, and are members of Church of the Apostles in North Raleigh. I have been a Wealth Advisor since 2005 and earned a Master’s of Science in Financial Planning from Bentley University. Soon thereafter I became a CFP® professional and received my Retirement Income Certified Professional® designation in 2015.