Most advisors estimate much lower percentages of their affected clients. This is because many clients are not forthright with discussing personal health issues, although a significant cause is undoubtedly advisors not asking. Many hate to discuss illness because they do not understand how advisors can use that information to help them. But in fact, a reasonable understanding of the current status of a client’s chronic illness and the likely disease course can enable advisors to provide more tailored and beneficial financial planning and wealth management services. This article will provide an overview of some of the many considerations.
Budgets are part of the foundation of any comprehensive financial plan. Relying on standard assumptions could be dangerously inaccurate for the client. Many chronic illnesses are progressive so that the disease and its financial impact can worsen over time. Consider the following modifications:
- Budget for large ticket items that can be estimated. These might include a handicapped accessible van, installation of an elevator and ramps in the client’s home, renovation of the kitchen and bathrooms to make them accessible and more.
- Consider using a higher inflation rate for the medical costs component of the expenses.
- Revise standard earning assumptions to reflect reasonable work-life expectancy for the client. Too often it is assumed that a client with a significant health issue cannot work at all. That is often not the case. But the impact will vary depending on the particular disease the client has and the client’s personal experience with that disease. The client’s neurologist and/or physician may be able to offer insight. Many disease organizations have a wealth of statistical data to offer.
- Encourage the client to obtain an independent-needs analysis. These are often prepared by consultants referred to as “geriatric” consultants, although the work is not limited to the elderly. This type of analysis may provide useful specificity as to work career expectancy, special living expenses, when outside aides might become necessary, how many and for how long, so that costs can be estimated and more. This type of report can be useful to preparing a budget, setting time horizons for different investment objectives, etc. The language and recommendations might warrant incorporation by the client’s estate planning counsel into the provisions of a revocable living trust to set standards for care and provide a more detailed suggested framework for the trustee.
- Having periodic meetings to review the above planning is more essential for a client with known health issues. If the disease progresses more slowly or perhaps not at all, budgets and time horizons can be revised accordingly. If the reverse occurs, the sooner in the process these developments are identified the more rapidly the client can be guided back to the revised planning goals. Significantly, for this group of clients, the advisor’s notes and calculations from the periodic meetings can be used to corroborate the lifestyle and other choices the client wishes in the event a time arrives when the client can no longer effectively communicate these wishes. The track record is essential.
Investment Plan and IPS
Too often advisors assume that if a client has a chronic illness that investment portfolios should be less risky, more liquid and so forth. This may be true in some situations is only coincidental. Assumptions and generalizations are no substitute for knowledge and planning.
The physical symptoms of Huntington's disease, for example, typically begin between ages 35 and 44 (although no assumptions should be made because they can begin in childhood or old age). Huntington’s disease is a chronic, progressive, neurodegenerative genetic disorder, which affects muscle coordination and leads to cognitive decline and dementia. Life expectancy has been estimated at approximately 20 years following the initial appearance of symptoms. A client in their early 40s, who has some significant savings and wealth from a career that could be nearly two decades long and a life expectancy of 20 years, may in fact be harmed by an excessively conservative, liquid short-term portfolio.
The prognosis for each disease varies substantially from other diseases. Even each client with a particular disease can face widely divergent prognosis. Advisors do not need to become experts in each potential disease, but rather open a dialogue with the client and, with the client’s permission the client’s family/loved ones and physicians (with appropriate HIPAA releases) to ascertain some of the anticipated major events. With that knowledge and a budget tailored to the client’s circumstances above, an appropriate investment plan may then be devised.
A few additional considerations:
- Investment policy statements (“IPS”) should be prepared, tailored to reflect the clients particular circumstances and revised with thought (not the SALY — “same as last year” moniker that adorned so many audit work papers in the days of yore). As more scientific knowledge is obtained, as the clients situation unfolds, the underlying assumptions should be revised.
- Who will sign the IPS? Initially the client will. But at some future date an agent under a durable power or a trustee of a revocable living trust, might execute the IPS. Plan in advance to create an historical record of the client’s decisions to provide a touchstone. Plan for a smooth transition.
- Determine which documents will govern the succession if and when it occurs.
- Clients living with a particular illness may be more inclined to provide charitable support or purchase charitable gift annuities, from the particular disease organization that serves people living with the illness the client has.
There are myriad of ancillary steps and considerations that might be relevant and helpful to clients with a particular illness. While many will be obvious, listing several might provide a useful starting point for advisers:
- If a client has mental health or cognitive issues the definitions of “disability” used in standard documents and planning may be useless.
- Each disease course can be quite different. Some clients might be largely incapacitated while undergoing medical treatments or experiencing an attack, but may recoup thereafter and be able to resume managing their financial affairs. The typical mechanisms for removing and replacing trustees incorporated into most legal documents are ineffective for dealing with these transitions.
- Simple steps such as consolidating assets, assuring a trusted person receives duplicates of monthly statements, computerizing records so that large monitors or voice recognition software can be used, etc. can have a tremendous benefit for the client.
Every adviser has a large number of clients living with chronic illness, even if that fact is not presently known. Empathy and giving clients a safe environment to share their vitally important health issues will encourage clients to disclose the information that will enable advisers to better provide tailored services.
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Martin M. Shenkman, CPA, PFS, MBA, JD, is an attorney in Paramus, New Jersey and New York City. His practice concentrates on estate planning and administration, tax planning and corporate law. Shenkman was included in Top 40 Tax Accountants in 2009 and was the recipient of the New Jersey Bar Association’s Alfred C. Clapp Award in 2008. His recent books include Estate Planning for People with Chronic Illness and Disabilities (Demos); Estate and Related Planning During Economic Turmoil (AICPA) and Life Cycle Planning for the CPA Practice (AICPA), The Complete Book of Trusts (Wiley) and others.
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