You want to do everything you can to protect yourself and your family financially if something should happen to you. But if tragedy strikes, will your loved ones know how to manage the money that you've spent decades of your life trying to save for them?

No matter how well you try to plan, it's almost impossible to create one portfolio that works both for you during your lifetime and for your family after you die. So if you want to give your loved ones some advance help managing their money after you pass away, it's not enough to pick good investments for you right now -- you also have to foresee what may be better investments for them after you're gone.

What really happens
Unfortunately, that kind of detailed planning rarely gets done. In my experience, what typically happens is that family members inherit a hodgepodge of stocks, mutual funds, and other investments, and are left with a host of issues they're ill-equipped to resolve. Trying to figure out things like how to divide up shares of various companies, what to do with indivisible assets like a family home, and which investments to hold onto or sell can easily overwhelm a family that's already hurting from your loss.

But dealing with a crisis doesn't have to cripple your family's finances -- or dominate their attention at a time when they're in no condition to deal with anything but emergency situations. Here are some tips to follow if you're facing the challenge of losing a loved one -- or trying to plan for family contingencies in the future.

  • Don't just hold the stocks. Assuming that what was good enough for one family member is good enough for anyone is dangerous, particularly when there's a big age gap involved. If a grandmother owns shares of utility stocks like Duke Energy (NYSE:DUK) or Southern Company (NYSE:SO), for instance, the regular dividend income and stable, steady growth in share prices may well match up perfectly with her risk tolerance. A granddaughter inheriting those shares, however, may do better to sell them -- even if they're a good investment -- and replace them with something that matches up better to a young person's goals and risk tolerance, such as Red Hat (NYSE:RHT) or (NASDAQ:AMZN), both of which arguably offer better growth prospects.
  • Don't rush it. To build a portfolio tailored to your own needs, you may need to make big changes to the investments you inherit. For the most part, you don't have to make changes in the first days or weeks after you receive new assets. The exception to this is if you inherit a portfolio that's heavy in highly speculative investments -- think companies like AIG (NYSE:AIG), Citigroup (NYSE:C), or Fannie Mae (NYSE:FNM) in today's market. You may want to take action soon before something puts your entire holding at risk.
  • Be smart with cash. In some cases, you'll have not only stocks and other assets, but also cash from places like bank accounts or life insurance policies. That money can serve a number of useful purposes, from paying bills and living expenses to providing you with the flexibility to make new investments that will help you reach your own financial goals. Ample cash gives you even more latitude to take your time making the best decision.

Most importantly, if you're trying to pre-plan potential changes for family members before something happens to you, take the time to explain your strategy and thinking process to someone who can follow in your footsteps -- whether it be another family member or an outside advisor who'll be available to help your family after you're gone.

After working so hard to put together a strong investment portfolio for yourself, it's a shame to think that all your efforts could go to waste after you're gone. If you take steps to preserve your wealth and plan for the future, however, you can do your best to ensure that you'll protect your family from the financial problems that often accompany a loved one's death.

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Fool contributor Dan Caplinger has worked through estates of dozens of families, some well-planned, some not so much. He doesn't own shares of the companies mentioned in this article. is a Motley Fool Stock Advisor recommendation. Duke Energy and Southern Company are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is always prepared.