A lot of financial planning puzzles would be much easier to solve if we knew our clients’ date of death. That idea of knowing when the inevitable will happen often elicits a chuckle from people because it is so clearly not something we know. But some clients have a dramatically heightened sense of when their lives will end. A diagnosis for a terminal illness is no laughing matter and presents a myriad of financial planning issues to address.

At a recent study group meeting, we had the privilege of spending some time with Carolyn McClanahan, an M.D. and CFP.  McClanahan is known in the financial planning profession for her ability to educate financial planners in a non-political way about the biggest issues facing our health-care systems.  She has been the go-to source for many on the good, the bad and the ugly of the Affordable Care Act. She is also leading the charge to equip and empower planners to better serve clients near the end of their lives.

Like many of us, McClanahan has an extensive list of financial items to address. I will get to some of those in a bit. She was quick to point out that diving into such a list as soon as one hears their client is ill is often not the best approach. She advocates listening, really listening, before assembling a to-do list. 

When a client shares the news with you, it is best to simply say, “Tell me more.” Often, they will have a to-do list in mind, but they may raise issues that are far from financial. Whatever they tell you is likely what is weighing on them the most.

She is also a big fan of the question, “What do you understand about your prognosis?”  This can give you some insight into how they view the situation. Some will be in denial. Others will be ready to fight. Some may say they know their odds are slim, but they want to try anything and everything in the hopes it may help someone someday. Many are accepting of the situation and do not want to put their body through the rigors of treatments that are unlikely to work.

Their spouses, other family and friends will all have reactions and opinions. It is important to remember who the client is and therefore whose wishes should get the most weight. That sounds straightforward, but sometimes the terminally ill want to hit that bucket list so hard that the surviving spouse’s long-term security could be less stable.

Most planners want to do something to help, and McClanahan likes to ask the simple question, “What concerns do you have that I can assist you with?”  The answer will be a good place to get started.

One important caution to be aware of is that cognitive impairment is common with the terminally ill. Many diseases can affect the brain. The treatments can be problematic, too. Many will cause fatigue, forgetfulness, even hallucinations. It is helpful to discuss this possibility with the client or someone the client trust and designates. 

If they are in denial or otherwise resistant to planning, one thing McClanahan suggests is to plan for the cured patient. In that planning, they are sometimes better able to admit that they are eventually going to die. At some point, the conversation can pivot to “let’s take care of this just in case.”

Interestingly, financial planning can be beneficial to their health. Studies show that patients that have their affairs in order respond better to treatment. So, another approach is to put the attention on creating an ethical will. For many, this will perk them up as they contemplate the values they wish to pass on to their heirs. This can make the transition into dealing with the nitty-gritty financial details feel like a natural extension of their planning.

Speaking of the nitty-gritty, there are quite a few things to consider. First and foremost is cash flow. Near term to facilitate treatment and care and long term for the survivors. 

In the near term, know their maximum out-of-pocket exposure. Will they need to travel?  Will they exceed the 10 percent AGI limitation (7.5% for older clients), giving them a tax deduction for their medical expenses? If so, should the healthier spouse accelerate any pending procedures of their own into the same tax year?

For younger clients, check the compassionate allowance section of the Social Security Administration website to see if the client’s condition is on there.  If so they are fast tracked for disability payments.

Obviously, the estate plan needs to be in order. Do the wills, trusts, advanced directives, powers of attorney, and ethical wills reflect the client’s needs and goals? Are the people who must respond to or administer these documents ready and able to do so? Are the beneficiary designations correct given the plan?

Look at insurances. Make sure all is arranged so the proceeds from life insurance will be paid to the correct party. If any policies are in danger of lapsing, formulate a plan to address this.

Then there are taxes. Consider titling anything with an unknown cost basis so it can get a step-up. Look for probate issues. Rolling a 401(k) into an IRA often will make estate settlement much easier.

Don’t forget, the surviving spouse may end up in a very different tax situation. Filing as a single can increase the marginal tax rate substantially. Roth conversions while the sick spouse is still alive can make a lot of sense. This is particularly true when large medical deductions are available to offset the tax on the conversions on the joint tax return.

It is also often very helpful to ask about any items like stock certificates in a safety deposit box or savings bonds that are notorious “pains in the butt” when it comes to estate settlements. Verify their existence, location and ownership. Don’t take the patient’s word for it. Sick brains get things wrong. 

On the not-necessarily financial end of things, McClanahan pointed out that the two top reasons family members fight are funeral arrangements and the distribution of personal items – the client’s “stuff.”  Siblings arguing over these issues is so prevalent, the fighting is almost a cliché.

Granted, some fighting siblings have been at each other’s throats since they could crawl, but many of these disputes and stresses can be minimized by encouraging the patient to communicate, preferably in writing what they want.  For personal items, McClanahan says, the most effective thing the patient can do is give the stuff away directly while she is still alive. Jack will find it harder to say he should have gotten dad’s war medals if dad handed them to Jill himself saying, “I want you to have these.”

The list of financial to-dos can be quite long, but the purpose of the planning process and creating the to-do list in the first place is to make sure things go as smoothly and as stress free as possible for all concerned. Being prepared is good for the sick client and the rest of the family. 

Planning is no easy task when someone is dying. There is a lot to it and emotions run high.  Planning assists all of them while they deal with the disease. It aids pre- and post-death grieving. It helps survivors make the rest of their lives all they can be a little faster and it keeps the memory of the client that passed away more alive. Better to remember how the client lived and the person they were than have the lasting memories be of an avoidable mess that was thrust upon them. The value of leading a family through end-of-life planning is enormous.

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines.  He practices in Melbourne, Fla.  You can reach him at [email protected].