Financial Planning for the Terminally Ill
Over the past few months, I’ve had an up-close and personal experience with this topic: my father recently passed away after a protracted illness. Financial planning is about making the best use of your available resources (money, time and skills) to do the things you want to do in life. Estate planning is most often about managing the transfer of your assets to your heirs. Estate decisions are difficult because we have to address our own mortality in order to make those kinds of plans. Doing estate planning in the midst of an illness adds an additional layer of emotional and financial complexity.
Planning ahead creates a good foundation on which to build when you are faced with the prospect of either protracted illness or the passing of a loved one. When a loved one falls ill, there are two or three documents that you will need to have in place:
• Advanced Health Care Directive. This document allows a trusted agent (typically close relative) to make medical decisions when you are not able. Ensure that the person who is ill has something in place to allow decisions to be made if they are incapacitated. It should also contain instructions for health care preferences such as resuscitation, pain management and extended care. These instructions are often called a “living will.”
• Durable Power of Attorney (DPOA). This document allows an agent to manage financial affairs, such as paying the bills and directing IRA distributions. For example, because my father’s name was on the cable account, my mother could not make changes until she presented the cable company with the DPOA.
• Trust. If you have a trust, know the trust provisions relating to successor Trustees and incapacity of a Trustee.
If these documents do not exist or are out of date, have an attorney update them quickly. Other things that should be addressed include:
Copies of all statements and documents. Do you have a current list of assets and liabilities, including account numbers, addresses, titling, etc.? Make sure you have copies of insurance policies, deeds, etc. Make sure you or somebody you trust knows how to get to any hidden assets, especially safe deposit boxes.
Review your estate documents. If you are unable to follow the legalese, have an estate specialist review them with you to make sure you understand what will happen to your assets once the illness runs its course. If you don’t have an estate plan, you should seriously consider it. Even a last minute will can save you time, money and difficulty.
Check that assets are properly titled. If you have a trust, ensure that your major assets have been transferred into the trust. Check that you know how an asset’s titling will affect its ownership when your loved one passes away. Never assume that something will transfer the way you want unless you’ve reviewed it with a professional. Mistakes here can be very costly.
Review your beneficiary designations. This may be hard for the healthy spouse to do on his or her own without a power of attorney for financial affairs, but you need to try if only to find out what you don’t know or can’t access. I’ve seen cases where divorced ex-spouses or even deceased parents were still beneficiaries on life insurance and retirement accounts, so cleaning this up is important.
Review special bequests. Do your heirs know which of your valuables are going to whom? Discussing this with them ahead of time or laying out your wishes in writing can head off family grief and strife later on.
Is there enough cash on hand to pay the bills? What will happen to pension, Social Security and other payments after death? It will take time to retitle accounts, and they may be frozen while that is in progress. Is there enough cash on hand in your name to pay the bills for a few months while any cash flow issues are taken care of?
This column is prepared by Rick Brooks, CFA®, CFP®. Brooks is director/chief investment officer with Blankinship & Foster, LLC, a wealth advisory firm specializing in comprehensive financial planning and investment management. Brooks can be reached at (858) 755-5166, or by email at brooks@bfadvisors.com. Brooks and his family live in Mission Hills.
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