“There’s always something that gets left out when you have to rush,” I thought as I poured over all of the papers on the conference room table. Tax returns, account statements, deeds.
It wasn’t anything on our end, but Eric could only get so much organized for his brother Mike in such a short period of time. Mike had been diagnosed with a terminal illness for a few years now, but he resisted putting together his plan until the last minute. Mike was in an incredible amount of pain as his body was physically shutting down, but his mind was clear. It meant he knew exactly what he was signing, but his had shook almost violently as he did.
With his trust and power of attorney in place, and with several deeds signed over into his revocable trust, Mike had then relied on his brother Eric to handle the details of getting his accounts into his trust to avoid probate. But Eric didn’t know about all of the accounts, and we couldn’t help fix what we didn’t know about. While we were able to get a trust put together in a few days, execute it, and get about eighty percent of the assets into the trust, there were still a few bank accounts, some life insurance proceeds, and a retirement account that had to go through probate before getting split between Mike’s parents, his girlfriend, and his parents.
It was always a little disappointing to handle probate for a planning client. With very short notice, my office was able to get several hundred thousand dollars transferred to the right beneficiaries within a few weeks. But now because of probate it was going to take six or seven months before we could get the last $130,000 or so to the right beneficiaries.
“If only we had a few weeks more,” I thought.
When a friend or loved one is diagnosed with a terminal illness, it’s easy to get caught up in the emotional turmoil surrounding the bad news. At the same time, though, there are many practical considerations for someone who receives a terminal diagnosis, from managing medical care to ensuring their estate plans are in order. If someone you know has been diagnosed with a terminal illness, here are some steps to protect the family and loved ones:
Is There an Estate Plan in Place?
Does the person already have an estate plan in place? Even if someone has some kind of plan established, this is an important time to revisit the plan and make sure it is the best it can be. At the very least, it’s a good time to ensure all of the named beneficiaries are correct and up-to-date, that all age limits and other restrictions are applicable, and to check the status of insurance policies and retirement accounts. A good estate planning attorney can help determine what changes to make to the estate plan in the face of a terminal illness.
If they don’t have a plan in place, though, it’s absolutely essential to establish one as soon as possible to deal with financial consequences, tax liabilities and the eventual distribution of assets.
Cover Medical Contingencies
Terminal illnesses range from fast-moving medical conditions with a short prognosis, to slow, lingering illnesses that can ravage the body and leave the person in a constant state of pain and discomfort. It’s important to plan for medical contingencies when someone has received a terminal diagnosis. A friend or family member who has received this diagnosis should draft:
• Living Will: sometimes called an advance health care directive, this document describes the person’s preferences regarding end of life care. It may spell out treatments and life-sustaining measures that the individual does not want, including things like mechanical breathing, tube feeding or resuscitation.
• Health Care Power of Attorney: this document gives someone the legal authority to make medical decisions if the individual in question is unable to do so.
• HIPAA Privacy Release: Under federal law, this release language is required to give friends or family members access to the individual’s medical records, treatment status, etc. Without this document in place, health care professionals are restricted in what information they can provide about the condition and care of the patient. Often, depending largely on attorney preference, this release language may be drafted directly in the Health Care Power of Attorney.
Cover Financial Contingencies
If there’s any possibility that the individual won’t be able to manage his or her own financial affairs, it’s a good idea to create and execute the appropriate documents giving trusted individuals the ability to act on his or her behalf. This can include everything from paying day-to-day expenses and hospital bills, to making decisions about investment accounts, retirement accounts and other financial resources. The friend or family member should draft:
• Revocable Living Trust: A revocable living trust serves the dual purposes of planning for the distribution of assets upon passing and also provides for a strong management position in the event of incapacity. By naming a trusted individual as a successor trustee, they can automatically step in and manage all trust assets if the person reaches the point where they are no longer able to do so.
• Financial Power of Attorney: A Financial Power of Attorney, particularly a durable general power of attorney, empowers someone to manage all accounts and assets outside of the revocable living trust, such as retirement accounts and life insurance. It also specifically authorizes the agent to handle government and other matters, such as signing tax returns and applying for social security benefits.
Review and Modify Investments
A long-term, low-risk investment strategy may or may not be the best choice when an individual has been diagnosed with a terminal illness as opposed to some higher growth with higher risk strategies. Revisit investments and revise the portfolio as appropriate, with a more short-term outlook on investments and the possible need for more liquidity.
Add Life Insurance Coverage, if Possible
If your friend or family member has the option to add more life insurance coverage, it may be worthwhile to do so at this point. After a terminal diagnosis is received, it will be difficult to add life insurance, but the individual may have a group policy, or a guaranteed insurability feature through an existing policy, through which it’s possible to acquire more coverage.
Consider Accelerated Benefit Provisions
If financial hardship is possible during the illness, it may be advisable to claim accelerated benefits from life insurance policies that offer those benefits. This feature is offered by some policies when an individual has a terminal diagnosis, although this benefit sometimes requires a specified life expectancy of short duration. Keep in mind that taking accelerated benefits will decrease the value of the death benefit, which can have an adverse impact on the spouse, children or other beneficiaries, but the lower benefit may be better than no benefit if the individual is considering simply dropping coverage by not paying the premiums.
It may be difficult to focus on practical matters after receiving a terminal diagnosis, but it’s important that the individual move quickly to secure the estate and get the appropriate legal documents and plan in place.