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The Medical Side of Estate Planning and Why it is Important


Medical terminology is largely a mystery to most of us.  I knew from the time I was a small child that I never wanted to be a doctor.  Maybe the words intimidated me; who knows?  I’ve said for years that the only thing that was more impressive to me than a kid who could get into Medical School was, simply, a kid who could get out of Medical School.

Sometimes medical terminology overlaps with financial planning concepts. Recently, when I read the word anosognosia, I naturally had to look it up in an online dictionary. According to the American Heritage Dictionary, anosognosia refers to the “real or feigned ignorance of disease.” In the article I was reading in Forbes Magazine, William Baldwin expressed it a bit more colorfully, with this definition: “You’ve lost your marbles, but you don’t know that.”

Put that way, I understand. In our day jobs, we have been confronted with this situation, both latent and in bloom. Recognizing that this problem may be in its infancy, either in our own selves or in people we know, can prevent sudden and tragic financial problems from emerging. Admitting that as we age, our chances of entering into this anosognosia “Twilight Zone” increase, there are steps we can take to delay the process. I’ll leave those to the medical profession. Similarly, there are steps we can take to prevent financial devastation, should the condition arise. In the arena of competent personal financial planning, this concept is becoming increasing popular.

Naturally, people who have close, trustworthy family members have a natural advantage over those who lack family, or worse yet, lack trust in the family they do have. Dealing with the former is far easier for us, although it requires an admission on behalf of the client that the problem could arise. Like a “pre-ObamaCare” insurance policy, once you need it, it is probably too late to get it. Someone who can no longer truthfully qualify as “being of sound mind” may not be able to delegate responsibilities to a trustworthy surrogate.

We attempt to circumvent that problem using standard tools of financial planning, along with some techniques designed for the purpose.  Here are some common tools that have helped us avoid a bad situation:

  • Durable Power of Attorney (DPOA) – this designates someone to make financial decisions during your lifetime, hopefully circumventing large and unnecessary expenditures.
  • Health Care Surrogate – this is similar to the DPOA, only it covers the medical side of later life.
  • Last Will and Testament – this document takes over upon your death, and tells the world your wishes for the disposition of your assets.  This document is basic, critical, and too often ignored.

If you aren’t yet feeling the need to do a better job of protecting your life’s financial accomplishments, pay attention.  There are a number of other tools that can further help you help your heirs with the process.  The process of asset distribution following death should be made as easy as possible.  After all, the affected individuals will be in a period of distress and mourning, or at least we hope so.  Whatever can be done by you in advance will help them, and will increase the odds of success.  In many cases, this includes saving money.

Additional planning possibilities include, but are not limited to, the following:

  • Establish Online Access for a family member to monitor your financial accounts, which can be limited in scope so as not to allow withdrawals without your permission.
  • Limit Online Transactions in favor of requiring all business to be conducted at the office of your custodian or planner.
  • Voice Recognition passwords are being made available by some custodians, and can be used to limit withdrawals without your permission.
  • Utilize Monitoring Software to notify some trustworthy individual of a transaction having already taken place.
  • Establish a Revocable Living Trust with you as Trustee, and also naming successors, should you no longer be able to serve.  Trusts are complicated, and must be done with an attorney.  Trusts are no longer simply “for the wealthy.”

In addition to the more traditional approaches to financial planning, we have developed other documents and procedures to deal with potential problems. 

  • Safety of Withdrawals Letter refers to a document we offer our clients that allows us to consult with chosen family members (or other designated representatives) on any concerns which may arise regarding the number, size, and frequency of monetary withdrawals from accounts of clients who have not acted this way in the past.
  • Maximum Transfer Amounts can be established with the custodian of the funds, assuring that no excessive withdrawals be made from client accounts.
  • Limiting Trading Authority can be done, again at the custodial level, so that an account owner who is in mental decline cannot trade wealth away needlessly.

One of the historical problems with elderly investors is abuse by the “financial advisors” they have used and, too often, trusted.  We see story after story about elder abuse by these “advisors.”  Many times it comes in the form of excessive trading in the accounts to generate more commissions (this is called “churning”).  What can an investor do to prevent these problems from occurring?  While nothing is 100% certain, there are simple steps that can be followed to select a reliable advisor, monitor progress, and intervene when something seems not-quite-right.

  • When looking for a financial advisor, there are criteria that should be followed before scheduling any interviews:
  • Look for a Certified Financial Planner® (CFP®), who is in good standing with the CFP® Board of Standards (www.cfp.net).
  • Determine that the planner publishes his or her acceptance of the fiduciary standard in the firm’s ADV Part 2, which holds him or her to the promise that the client’s interest will be placed first.
  • Look for the term “fee-only,” and don’t accept “fee-based,” which is not the same thing, as commissions may creep into the relationship if it is not fee-only.
  • Ask where your money will be held, and what you can do to see it independently, every minute of every day, on the website of a recognized third-party custodian.
  • Look for the advisor’s affiliations in groups such as the FPA, or Financial Planning Association (www.plannersearch.org), and NAPFA, the National Association of Personal Financial Advisors (www.napfa.org), which assures that the advisor adheres strictly to the fee-only standard.
  • There are also precautions that can be taken (alone or with a trusted third party) when an aging client is working with an advisor:
  1. If the client has been active in stock trading, it makes sense to transition into a more passive portfolio, consisting of more mutual funds and Exchange-traded Funds.
  2. The portfolio should be examined for any items that are not clearly understood, or for which origins are not easily identified.
  3. Attend quarterly meetings, either in person, or by phone, Skype, FaceTime, or whatever means are available, to maintain contact with the ongoing progress of the portfolio and the advisor.
  4. Learn the warning signs of potentially risky “investments,” such as promises of outsized returns or “guarantees.”

Living longer is a statistical fact of modern life.  We can’t all be the lucky ones, but we would be foolish to treat our retirement planning with any expectation that it will be short.  The objective of Financial Independence requires a consideration of longevity; as the last thing we want is to outlive our money.  Working with a competent CFP® will enhance your chances of success.