Page 8 of 12

Financial Planning Does Not End at Retirement

January 13, 2020 / drussellcfp

With the new year, I’ve entered my 36^th year in the financial services industry. Just writing this fact feels strange. I’ve never characterized myself as a veteran of the industry, feeling instead that I’ve just hit my stride. The years however tell me differently and it’s easy to understand how senior professionals can feel marginalized. I chose a doctor several years my junior so that as I aged, he’d still be in practice. Understandably now, clients want to know who my back up is “just in case.”

The financial planning industry has done an admiral job of preparing people for two pivotal moments: Retirement – that magic age when one stops earning a paycheck, travels the world, plays golf every day, and enjoys a life of leisure; and Death – the final moment beyond which our assets and legacy are left to our heirs. It has done a poor job of equipping advisors to address the financial planning issues of the period in between. Sure, advisors sell long term care insurance to forty and fifty-somethings for this period, and others sell annuities to seniors skittish about the financial markets, but these are product solutions aimed at the senior market, not financial planning discussions. In a similar way, a walker solves an issue with balance and prevents falls, but a walker is not a comprehensive plan for health and wellness throughout life.

While there are several common financial planning issues for every age demographic, there are also many unique financial planning needs of the senior market.

Common Financial Planning Issues

Ensuring adequate cash flow throughout life.
Evaluating and addressing risks to financial independence.
Determining the financial impact of major life events.
Minimizing income tax.
Allocating investment resources to accomplish current and future goals.
Defining a plan for the distribution of accumulated assets at death.

Financial Issues Unique to Seniors

Plan for downsizing or home modification
Relocation plan if distant from family
Plan for continued social engagement
Family business succession
Identity and fraud protection
Annual Medicare elections
Developing a dependency plan to include
- Living arrangements
- Persons in charge of financial decisions
- Persons in charge of healthcare decisions
- Transportation needs

It’s tempting to ask how a plan for continued social engagement is a financial planning issue. With social isolation a major contributor to poor health among seniors[1], and healthcare costs absorbing a significant portion of a senior’s resources, a plan for social engagement as we age should be an integral part of the financial planning conversation with seniors.

Annual Medicare elections are another example of an often-confusing labyrinth of decisions that can have significant financial impact for years.

Identity theft and elder financial fraud are estimated to cost seniors between $3 and $30 Billion a year[2], and nearly everyone I know over age 70 has been targeted. A plan that includes identity theft protection as well as vulnerabilities to undue influence inside of familial relationships needs to be included.

Plans for living arrangements, whether aging in place, or facility care, should be discussed long before the actual need arises. Just as saving for retirement doesn’t begin at age 65, neither should plans for where someone lives out the remainder of their life be delayed until the 11^th hour.

Family meetings to discuss an aging client’s dependency plan should be also be held long before a dependency event occurs. It helps assure family members that a plan is in place, informs them as to who-does-what-when, and when done early enough and under the direction of the aging client, preserves his or her seat of honor at the head of the table.

Family Business Succession has been a central component of financial and estate planning for years and is the least neglected area of financial planning for seniors among those who own a multi-generational family enterprise. Still, nearly 60% of the small business owners surveyed by Wilmington Trust, do not have a succession plan in place[3].

In conclusion, financial planning does not end at retirement. As one client reminded me years ago, “retirement is just another word for thirty years of unemployment.” It doesn’t look the same for all seniors but when practiced with integrity, it can be extremely beneficial to the entire family, and rewarding for the financial planner who chooses to serve this market.

[1] National Institute on Aging. (2020). Social isolation, loneliness in older people pose health risks. [online] Available at: https://www.nia.nih.gov/news/social-isolation-loneliness-older-people-pose-health-risks [Accessed 7 Jan. 2020].

[2] Consumer Reports. (2020). Financial Elder Abuse Costs $3 Billion a Year. Or Is It $36 Billion?. [online] Available at: https://www.consumerreports.org/cro/consumer-protection/financial-elder-abuse-costs–3-billion—–or-is-it–30-billion- [Accessed 7 Jan. 2020].

[3] Usatoday.com. (2020). [online] Available at: https://www.usatoday.com/story/money/usaandmain/2018/08/11/most-small-business-owners-lack-succession-plan/37281977/ [Accessed 7 Jan. 2020].

In France, Postal workers deliver more than Christmas Cards.

December 18, 2019 / drussellcfp

French postal workers will be delivering more than Christmas packages and greeting cards this holiday season. A service that began in France in 2017 called Veiller Sur Mes Parents (“Watch Over My Parents”) employs the country’s postal service workers to check on their older customers and report their well-being to family members.

A month of these weekly visits plus an emergency-call button costs about $40.00. The fee is collected by the French postal service. Every day except Sunday, postal workers inform the program’s subscribers, through an app, if their elderly relatives are “well”: if they require assistance with groceries, home repairs, outings, or “other needs.” Since V.S.M.P. was introduced, about six thousand elderly women and fifteen hundred elderly men have been enrolled across the country.

The program is just one of several that have been implemented in order to bring better financial stability to the country’s postal service, where volume is down by nearly 50% from ten years ago, and revenues from postage cannot support the quasi-public postal service. In some places, French postal workers now pick up prescriptions, return library books, and deliver flowers. Last year, only 28% of La Poste’s revenue came from sending mail.

Could this work in the U.S.? About 28 percent of older adults in the United States, or 13.8 million people, live alone, according to a report by the Administration for Community Living’s Administration on Aging of the U.S. Department of Health and Human Services. Like the French postal service, the United States Postal Service is also hemorrhaging financially, reporting nearly $2.3 Billion of losses in the third quarter of 2019 among the backdrop of falling volume. In her third-quarter report, Postmaster General Megan Brennan stated that the Postal Service’s “largely fixed and mandated costs continue to rise at a faster rate than the revenues that can be generated within a constrained business model, which is ill-suited to ensure the long-term sustainability of the Postal Service.”

Why couldn’t postal workers become a front-line force for checking in on isolated and elderly customers along their daily routes? What a tremendous use of under-utilized resources and an added revenue source for the USPS! France seems to have taken a very capitalistic lead on a very social issue; one that will address both the concern families have for their aging loved ones living alone as well as the financial losses experienced by their postal service.

Sources:

Poll, Z. and Poll, Z. (2019). In France, Elder Care Comes with the Mail. [online] The New Yorker. Available at: https://www.newyorker.com/culture/annals-of-inquiry/in-france-elder-care-comes-with-the-mail [Accessed 6 Dec. 2019].

National Institute on Aging. (2019). Social isolation, loneliness in older people pose health risks. [online] Available at: https://www.nia.nih.gov/news/social-isolation-loneliness-older-people-pose-health-risks [Accessed 6 Dec. 2019].

About.usps.com. (2019). U.S. Postal Service Reports Third Quarter Fiscal 2019 Results – Newsroom – About.usps.com. [online] Available at: https://about.usps.com/newsroom/national-releases/2019/0809-usps-reports-third-quarter-fiscal-2019-results.htm [Accessed 6 Dec. 2019].

Casey Kasem children settle their wrongful death case against his wife

December 13, 2019 / drussellcfp

Kerri, Julie and Mike Kasem have asked a judge to dismiss their wrongful death lawsuit against their stepmother, Jean Kasem, 64, as part of a settlement after a four-year legal feud.

While these cases make the headlines due to the celebrity status of the parties and the amount of money involved, dramas like this for much smaller amounts happen all too frequently. Death and money can bring out the worst of family dysfunction.

How can families prevent this kind of outcome? There is no simple answer, and if the dynamics among the family are already toxic, then it’s even more important that families have a solid, written plan in place before incapacity strikes. It may not have prevented the accusations of wrongful death between the parties, but it could have created a structure of care and wealth distribution that could have neutralized or minimized any incentive for the parties to commit a wrongful death offense.

Unfortunately, no estate plan can prevent an immoral or illegal act; nor can it instill character in the lives of others.

Source: Casey Kasem’s children settle their wrongful death case against his wife | Daily Mail Online

Should families be concerned with inherited wealth?

December 11, 2019 / drussellcfp

A recent article written by Joe Pinkster for the online magazine, The Atlantic, discusses the issue of inheritance, and specifically whether there exists a magic number that represents an inheritance that is too large[1]. This question has become relevant for many reasons, one being that some wealthy parents are concerned that after a certain point, money passed down will be damaging to the next generation, removing the incentive to be productive contributors to society.

This is not a new question. King Solomon in the Old Testament, clearly pondered the same question during a particularly dark time in his life:

I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. And who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. This too is meaningless. So my heart began to despair over all my toilsome labor under the sun. For a person may labor with wisdom, knowledge and skill, and then they must leave all they own to another who has not toiled for it. This too is meaningless and a great misfortune.
ECCLESIASTES 2:18-21 NIV

The question is, should this be a concern of most families given the fact that most people won’t receive vast fortunes from their parents? In fact, research by the Federal Reserve indicates that 85% of inheritances between 1995 and 2016 were less than $250,000 and most were less than $50,000.[2]

From my personal life and professional experience, I have formed this observation: sudden money will bring out a recipient’s best or worst financial behaviors to the degree that they have been prepared for it, regardless of the amount. This is not to say that mistakes with inherited money are necessarily a bad thing. Speaking for myself, the lessons that I have learned through failure are some of my more life-changing ones, and I wouldn’t trade the failures for successes without the lessons.

For those inheriting less than say, $50,000 – the impact of learning through failure isn’t as financially devastating as burning through $5 Million. Older parents who are concerned about their adult child’s ability to manage up to perhaps a $150,000 inheritance may want to consider these less elaborate (and less costly) options than leaving their assets in trusts or other complex arrangements:

Leave it to them unfettered and simply let them do their best with it and hopefully learn a valuable lesson in the process. Losing $50,000 for buying an RV rather than saving it for retirement may be a painful lesson, but one they can likely recover from.
Consider leaving the money to a grandchild’s education account such as a 529 Plan, instead of outright to the adult child-parent.
If the inheritance is paid through an insurance policy, discuss the policy’s settlement options (how the death benefits are paid to a beneficiary) with your insurance agent. One option may be the payment of a monthly amount spread out over a number of years which cannot be altered by the beneficiary.

One exception to these simpler options is if the adult child has a physical or mental disability and receives government assistance such as Medicaid. In such case, working with a Medicaid attorney to create what is known as a Special Needs Trust, may be necessary to preserve these benefits, but this has little to do with the behavioral issues that concerned Solomon or many families today.

What about the small percentage of significantly larger inheritances? Should families be concerned about how the sudden impact of substantial financial windfalls will affect those who inherit? My response is a resounding YES not only to preserve the wealth left to these beneficiaries (The Sudden Money Institute, a think tank and financial consultancy specializing in planning for life transitions such as inheritances, claims that 90% of inherited wealth disappears by the third generation), but also because inheriting sudden wealth can be difficult emotionally as well.[3]

For over two centuries, wealthy Americans have used trusts and other elaborate means to preserve family wealth or family-owned business enterprises, control heirs’ behavior from the grave, or provide financial tutelage until heirs demonstrate the ability to responsibly handle their wealth. Trustees – those who control the purse-strings for these wealthy heirs – are required by law to act in the best interest of these heirs. A good trustee will assume the roles of surrogate and mentor with the beneficiaries under his care and like a good parent, will sometimes allow the beneficiary to fail small in order to learn valuable lessons for when the beneficiary may have responsibility for a much larger fortune later on.

However, no estate plan can instill character regardless of the sophistication of the plan. A healthy work ethic, compassion, integrity, loyalty, fidelity… these are ultimately behavioral choices we all must make, no matter how wealthy we may become. Perhaps this was Solomon’s true lament.

[1] Pinsker, J. (2019). How Much Inheritance Is Too Much? [online] The Atlantic. Available at: https://www.theatlantic.com/family/archive/2019/10/big-inheritances-how-much-to-leave/600703/ [Accessed 29 Oct. 2019].

[2] Source: Survey of Consumer Finances, Federal Reserve Board. Last update June 1, 2018. https://www.federalreserve.gov/econres/notes/feds-notes/how-does-intergenerational-wealth-transmission-affect-wealth-concentration-accessible-20180601.htm

[3] “Financial Psychology and Lifechanging Events: Financial Windfall,” National Endowment for Financial Education.

Former rugby star accuses brother of mismanaging family trust

December 9, 2019 / drussellcfp

In yet another case of family member trustees gone wrong, Former St George Illawarra Dragons star Mark Gasnier has accused his brother of taking funds from a family trust as part of a long-running dispute.

Mark Gasnier and his brother Dean, are co-trustees of a family trust apparently established by their parents. According to the complaint, Dean, without the knowledge of Mark, made a number of withdrawals from the family trust and even went as far as faking the signatures of his parents John Gasnier and Janene Gasnier on financial documents including tax returns. The case is headed to the New South Wales Supreme Court.

Appointing an institutional corporate trustee might have prevented the dispute since corporate trustees typically include layers of checks and balances designed to prevent unauthorized withdrawals from occurring. If families still want someone within or close to the family involved, then appointing them as co-trustee with limited authority is a possible solution.

Perhaps this sibling rivalry should have been left on the Rugby pitch!

Source: Mark Gasnier accuses brother of mismanaging family trust

Comatose transplant patient kept alive allegedly to benefit hospital’s survival rate.

November 7, 2019 / drussellcfp

The U.S. Centers for Medicare and Medicaid Services is investigating a New Jersey hospital after an investigative article from ProPublica, an independent, non-profit newsroom that produces investigative journalism in the public interest, published an article on October 9, 2019 in which several of the hospital’s Transplant team discussed keeping a comatose transplant patient alive “because of worries about the transplant program’s survival rate.”

After suffering from congestive heart failure for years, Darryl Young, a Navy veteran and former truck driver with three children, received a heart transplant on Sept. 21, 2018. Since the transplant, Young had suffered from pneumonia, strokes, seizures and a fungal infection. The Newark transplant team believed that he would never wake up or recover function. Yet they wanted to do all they could to keep his new heart beating.

ProPublica’s investigation found that Newark Beth Israel’s transplant team was worried about the possibility of being disciplined by CMS after six out of 38 patients who received heart transplants in 2018 died before their one-year anniversary. That translated to an 84.2% survival rate, considerably worse than the 91.5% national probability of surviving a year for heart transplant patients, according to the Scientific Registry of Transplant Recipients, which tracks and analyzes outcomes for the government.

If a program’s survival rate falls too far under its expected rate, which is calculated by a CMS algorithm, the agency could launch an audit. If the audit uncovered serious problems, CMS could pull a program’s Medicare certification, meaning that the federal health care insurer would stop reimbursing for transplants.

In recordings of transplant staff meetings discussing Darryl Young’s prognosis, senior staff are heard discussing the importance of keeping Young alive, even if it meant not informing his family of his deteriorating condition so that decisions to remove him from life support could be made.

Spurred by a ProPublica investigation, CMS will carry out an inquiry.

Chen, C. (2019). Feds to Investigate Hospital Alleged to Have Kept Vegetative Patient Alive to Game Transplant Survival Rates — ProPublica. [online] ProPublica. Available at: https://www.propublica.org/article/feds-to-investigate-hospital-alleged-to-have-kept-vegetative-patient-alive-to-game-transplant-survival-rates [Accessed 5 Nov. 2019].

Who is watching over the nursing home managing Mom’s Social Security?

November 5, 2019 / drussellcfp

According to the U.S. Government Accountability Office, nearly a million individuals relied on organizational payees to manage their Social Security benefits in 2018. Due to an aging population, more beneficiaries may need organizational payees in the future. These beneficiaries are among the most vulnerable because, in addition to being deemed incapable of managing their own benefits, they lack family or another responsible party to assume this responsibility.

The Social Security Administration (SSA) approves organizational payees—such as nursing homes or non-profits that manage the Social Security benefits of individuals unable to do so on their own—by assessing a range of suitability factors, such as whether the organizations have adequate staff to manage benefits for multiple individuals. However, GAO found that SSA’s policy does not specify how to assess more complex suitability factors, such as whether an organization demonstrates sound financial management.

Without clearer guidance, unqualified or ill-prepared organizational payees could be approved to manage benefits. Also, SSA does not currently require background checks for key employees of an organizational payee. In contrast, SSA requires background checks for individual payees—such as a relative or friend of the beneficiary. A comprehensive evaluation could help SSA determine whether and how to expand their use of background checks to organizational payees.

The GAO has made nine recommendations to the Social Security Administration to strengthen the protection for seniors whose benefits are being managed by an institution.

Source: U.S. GAO – Social Security Benefits: SSA Needs to Improve Oversight of Organizations that Manage Money for Vulnerable Beneficiaries

What the new “Patient-Driven Payment Model” could mean for Medicare nursing home care.

October 29, 2019 / drussellcfp

On October 1, 2019, the Centers for Medicare & Medicaid Services (CMS) began implementing a new payment system for Medicare-covered nursing home care. The payment system is called the “Patient Driven Payment Model” (PDPM). PDPM creates a new set of financial incentives for nursing homes to consider when admitting and discharging residents, as well as providing resident care.

According to the Long Term Care Community Coalition, some of the incentives created under the new payment model could result in less advantageous care for some Medicare-covered nursing home care.

Families with loved ones who may be eligible for Medicare-covered nursing home care need to educate themselves on how this new payment model could impact the quality of care their family member may receive after hospital discharge.

Joint Statement: The Patient Driven Payment Model What Does It Mean For Residents? – Nursing Home 411

Addressing the 800lb gorilla: Most financial scammers of the elderly are family.

October 24, 2019 / drussellcfp

A recent Barron’s article discusses ways in which adult children can protect their parents from financial fraud. Elder Financial Abuse is estimated to defraud older Americans of somewhere between the disparate estimates of $3Billion to $35Billion a year. The large disparity is due to the number of data sources, and estimations of unreported abuse, but suffice it to say, it is a problem.

While the elaborate means scammers take to defraud our aging parents of their resources are popular to write about, focusing on these threats ignores where 85-90% of defrauding takes place – within the immediate family of the victim. According to a report by the National Committee on Aging,

Over 90% of all reported elder abuse is committed by an older person’s own family members, most often their adult children, followed by grandchildren, nieces and nephews, and others.
Source: National Committee on Aging

My friend and colleague, Cynthia Healy, has years of experience investigating elder financial abuse, and she produced this short segment on family theft. Other resources can be found on her website gogrey.com.

The best way to address this 800 lb gorilla is to teach the virtue of honor in our family systems, and specifically how honor shapes the attitudes or actions that we take towards our elderly parents and/or their resources. Much of the familial elder financial abuse is subtle and occurs out of a sense of entitlement, the perpetrator justifying his actions under the guise of “mom won’t miss this.”

Still for those adult children who do honor their parents and their parents’ possessions, these articles offer practical and relational advice.

To help aging parents protect themselves, their grown children must tactfully broach the subject of their vulnerability. The key is to adopt an attitude of empathy and non-judgment, says Amy Nofziger, director of fraud victim support at AARP, an advocacy organization for older Americans. “Always start the conversation with empathy and compassion, and don’t be paternalistic,” she advises.
Source: Advisors Offer Precautions on Keeping Financial Scammers Away. – Barron’s

Too much trustee discretion prevents elderly beneficiary from Medicaid eligibility.

October 21, 2019 / drussellcfp

A New York Appeals court recently affirmed the State’s Medicaid division’s decision to deny Medicaid eligibility to the beneficiary of a trust, arguing that the trust gave the trustee too much discretionary authority. The case underscores the need to have an experienced attorney familiar with local Medicaid rules, draft trust documents where protecting Medicaid eligibility is a major concern.

In this instance, the applicant’s son was trustee of a living trust established for the benefit of the applicant. As trustee, the son took out a home equity loan using trust assets as collateral, and used the loan proceeds to pay for his father’s living and caregiving expenses. Once the trust assets were depleted, the father applied for Medicaid benefits but was denied because the State ruled that the trust assets were available to the applicant, and imposed the required “look-back rule” in denying eligibility.

In upholding the State’s determination, the Appeals Court stated:

Because the trust instrument gave the trustees broad discretion in the distribution of the trust principal, including for petitioner’s benefit, the agency did not err in concluding that the principal is an available resource for purposes of petitioner’s Medicaid eligibility determination

For the full text of the ruling, click here.

Wealth and Honor