In the video below, Robert Powell, editor of The Street’s Retirement Daily, and Angie O’Leary, head of wealth management with RBC Wealth Management, talked about the need to plan ahead for the possibility of dementia and the type of plans to put in place.
According to O’Leary, the plan should include having key legal documents – a power of attorney, healthcare directive, and will – in place as well as having assets properly titled and beneficiary designations current. Consider too, she said, the benefits of a trust and professional executor services, as well as supplemental insurance, including long-term care options.
O’Leary also noted the need to understand early warning signs and, after a diagnosis, acting swiftly to protect the family from financial missteps, abuse and liability.
Having a plan is essential, and key legal documents—a power of attorney, healthcare directive, and will—should be in place.
If you are struggling through the financial transitions of aging, Wealth and Honor is here to provide you with resources to help you and your family through it.
It’s a suitable Valentine story that is as saccharine sweet as it is painfully tragic. Richard and Alma Shaver were childhood friends and high school sweethearts who eloped at eighteen. They were described as soulmates who were madly in love with one another. Richard became an engineer, they raised three daughters, Alma led Girl Scout troops and became the go-to person in the neighborhood for emergency contact.
The symbol for Alzheimer’s
A few years back, Alma was diagnosed with Alzheimer’s disease and the silent thief lay siege to Alma’s mind. She went from forgetting recently completed tasks to not recognizing her children, and ultimately not recognizing Richard. It was more than he could take.
On a warm day last June, while Alma was sleeping, Richard went upstairs to their bedroom and shot his beloved wife dead. Then he lay down beside her and shot himself.
It was not the ending that his family had hoped for, but they console themselves that they are not having to endure a murder trial. They held a memorial service and celebrated the happier lives that they had known with their parents. Perhaps this family’s tragedy and other less-tragic but equally painful deaths caused by this disease will lead to more open discussions on death with dignity laws.
On this day for lovers, embrace your partner, and tell him or her that you will be there for them if they are visited by the silent thief, but that you will not participate in a tragic end to their life or yours. It only perpetuates the pain for those we may leave behind.
With the new year, I’ve entered my 36th 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 11th 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].
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].
At least 2 million older adults would benefit from home-based primary care, according to Health Affairs. Because these patients have difficulty getting to an office visit, they frequently end up in emergency rooms or hospitals.
Per-patient savings range from $1,000 to $4,000 annually through reduced hospital and nursing home stays, emergency room trips and specialist visits, according to research cited by the American Academy of Home Care Medicine.
According to the American Academy of Home Care Medicine, the CMS Independence at Home Demonstration, part of the Affordable Care Act, estimated that Medicare would save $10 to $15 billion total over a 10-year period if home-based primary care were extended nationally to those on Medicare who are homebound.
An increasing number of Americans ages 50 and older are in cohabiting relationships, according to a new Pew Research Center analysis of the Current Population Survey. In fact, cohabiters ages 50 and older represented about a quarter (23%) of all cohabiting adults in 2016. One reason could be the adult children’s rejection to their older parent’s marriage, especially if the relationship formed soon after the death of the other parent. Approximately 23% of cohabiters over age 65 are widowed.
However, as with many things in life, what seems simple — living together — is often quite complex. Unmarried couples, of all sexual orientations, can face a variety of problematic and emotionally difficult issues because estate planning laws are written to favor married couples.
Unmarried partners need to consider the following issues related to estate planning and living together:
Medical incapacity: In the absence of a durable power of attorney for healthcare, non-married individuals may be treated as “legal strangers” and unable to make healthcare decisions on behalf of their partner.
Living arrangements: If the wealthier partner dies or becomes incapacitated with no provision for the other partner to remain in the home (by a will or title) the other partner can be forced from the home by blood kin.
Dying without a will: Intestacy laws (state laws that determine where a deceased’s property goes when there is no will) are not favorable to unmarried partners.
Employer Retirement Plans: Plans like 401k’s, profit sharing, and pension plans, as well as group life insurance plans are governed by a federal law known as ERISA. This law requires that a spouse be the beneficiary of these plans in the event of the employee’s death unless waived by the spouse. No such protection is afforded unmarried partners unless the partner is listed on the Plan’s beneficiary form.
The emotional stress of dealing with
one’s impending death due to a terminal illness like cancer, AIDS, etc., is
further compounded by the customary increase in medical bills and a likely
reduction in earning capacity.
A person owning life insurance
policies may have several options for reducing some of his or her financial
concerns.
Methods of
Reducing Financial Concerns
Borrow against cash values: Permanent
type policies such as whole life, variable life, universal life, etc., build up
cash values over the years. The owner of the policy is usually able to borrow
money from the cash value, often at favorable interest rates. When death
occurs, the policy loans and any interest will be subtracted from the face amount
of the policy before payment is made to the beneficiary. If there is also a
“waiver of premium” provision the insured may be relieved of the monthly
premium payments, in certain circumstances.
Surrender the policy: Policies
with accumulated cash values can be surrendered to the life insurance company.
However, this would generally not be desirable, since the face amount of the
policy is usually much higher than the surrender value and the time of death is
close. There may also be income tax consequences.
Borrow funds from a third party: Other
friends, family members, and possibly the beneficiary of the policy may be
willing to lend money to the person who is terminally ill and then receive
repayment from the insurance proceeds.
Accelerated death benefits: Some
life policies provide for payment of a portion of the face amount if the
insured becomes terminally ill. This is generally called a “living benefit” or
an “accelerated death benefit.” Even if it is not mentioned in the policy the company
may have extended the right to the policy owner; the availability of such benefits
should be investigated. Some companies require the owner to have a life
expectancy of from six to nine months or less. Terminally ill persons
(diagnosed by a physician as expected to die within 24 months) may receive
accelerated death benefits free of federal income taxes. Chronically ill
individuals may also exclude from income accelerated death benefits which are
used to pay the actual costs of qualified, long-term care. See IRC Sec. 101(g) for
more detail.
Viatical settlements: Another
option is to sell one’s life policy to a third party[1] in
exchange for a percentage of the face amount. This is called a viatical
settlement. It comes from the Latin word “viaticum” which means “supplies for a
difficult journey.” These settlements may also be available with contracts that
have no cash value such as individual or group term life insurance policies.
Factors which will determine the amount of the settlement include:
The insured’s life expectancy is a factor. In
general, the shorter the period, the more a viatical settlement company will
pay. Some companies will accept up to a five year life expectancy, but many
prefer a shorter term of years.
The period in which the company can contest
the existence of a valid contract must have passed, as well as the “suicide
provision” (typically two years after issue). This period may begin again for
policies that have been reinstated after a lapse for nonpayment of premium.
The financial rating of the company that
issued the policy is important. A lower rating can result in a smaller
settlement.
The dollar amount of the premiums is a factor.
The buyer of the policy is likely to be required to continue making the
payments for the remainder of the insured’s lifetime.
The size of the policy is a factor. Most
settlement companies have upper and lower limits; for example, a top limit of
$1,000,000 down to a low-end limit of $10,000.
The current prime interest rate is important,
since the buyer will compare the settlement agreement to other types of
investments.
After
examining the above factors, a settlement company will generally offer the owner
of the policy between 25% and 85% of the policy’s face amount. The settlement
amount may be received free of federal income tax under conditions similar to
those described above under “accelerated death benefits.”
Other
Considerations
If the terminally ill person is presently
receiving benefits that are dependent upon his or her “means” (income or
assets), like Medicaid, food stamps, etc., he or she must weigh the effect of a
viatical settlement on these benefits. Benefits may be terminated or reduced
until the settlement amount is “spent down.”
If the policy also has an accidental death or
dismemberment rider, those rights should be specifically retained by the
insured in the viatical settlement agreement. The time between applying for a
viatical settlement and having the cash is generally three to eight weeks.
However, this will depend on how quickly the medical information and
beneficiary release forms are in the hands of the settlement company.
Most viatical settlement companies stress the
confidential nature of the transaction but they require the named beneficiary
to release any possible claim to the proceeds. If the insured does not want the
beneficiary to know of the illness, he or she may change beneficiaries just
prior to completing the settlement. If the estate were named as beneficiary,
the insured (owner) would be the only one who would need to sign the release
forms.
If death occurs before the viatical settlement
is completed, with the insured’s estate as the beneficiary, the life insurance
proceeds would be paid to the estate and may be subject to probate
administration.
Viatical settlement of group insurance
policies will usually require that one’s employer be notified.
Confidentiality may also be lost if the policy
is sold by the settlement company in the “secondary market” to individual
investors, since a new investor would want to know the health status of the
insured.
An escrow account is generally used to make certain
that the payment of the agreed upon amount is made to the insured shortly after
the insurance company notifies the escrow company that the ownership of the
policy has been transferred to the viatical settlement company.
Several viatical settlement companies should
be investigated in order to negotiate the best offer.
Typical Uses
for the Cash Received Include
Cover out of pocket medical expenses.
Finance alternative treatments not covered by
existing medical insurance.
Purchase of a new car or finance a dream
vacation.
To be able to personally distribute cash to
loved ones.
Ease financial stress to perhaps further
extend life expectancy.
Maintain one’s dignity by not dying destitute.
Pay off loans.
The
sale of one’s life insurance policies can have far reaching effects and should
be done only after consulting with one’s attorney, certified public accountant
or other advisors.
[1] Effective January 1, 2018, the Tax Cuts and Jobs Act of 2017 established a new requirement to report certain information when a life insurance policy is acquired in a “reportable policy sale.” A reportable policy sale refers to the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured, apart from the acquirer’s interest in the life insurance contract.
Having a plan is essential, and key legal documents—a power of attorney, healthcare directive, and will—should be in place.
