By: Martin M. Shenkman, CPA, MBA, JD
A close friend was recently diagnosed with Multiple Sclerosis (MS). The course of MS is unpredictable; the effects range from mild to devastating. Such a diagnosis affects every aspect of your estate and financial planning. Some of the modifications are minor, while some are significant. Some steps should be implemented immediately; others can be viewed as more long term goals. Just as everyone’s experience with any chronic disease is unique to them, one’s planning, while it should consider the potential impact of his or her illness, must be tailored to address his or her personal circumstances. While this article refers to MS, the planning is similar for many chronic illnesses.
Living Will: A living will is a statement of your health care wishes. Discuss yours with your neurologist, so that you can tailor the language to reflect nuances appropriate to your MS situation. Reconsider organ or tissue donations. Perhaps the reality of your situation will enable you to reconsider donating tissue for MS research. Be sure the language is specific enough as to what you want done so that your donations will be used for MS research. Include a guardian designation in your health care proxy.
Fiduciaries: Trustees, executors, agents under a power or health care proxy are generically referred to as “fiduciaries”. When you disclose your diagnosis to close friends and family you might well be surprised by the reactions. Friends may be at your side and unbelievably supportive with a soft shoulder, or dinner by a lake to cheer you up. An old high school friend may renew a valued friendship. Yet, a parent or sibling, expected to be the most helpful, may prove conspicuously indifferent and absent. A teenager may show sensitivity and maturity beyond his years. Reevaluate who you designate as fiduciaries in light of how these people have acted since your diagnosis. You will need to rely on your fiduciaries. Choose them carefully for what they can do, not out of obligation or guilt. Reconsider naming an institutional co-trustee to assure independence, and to lessen the burden on a friend who cannot afford the time to handle all your affairs.
Charitable Planning: Creative charitable planning techniques provide income tax deductions, gift and estate tax benefits and the joy of contributing back to society. With your new diagnosis, perhaps major planned gifts you were toying with should be brought to fruition in a manner that can best help you financially and promote MS research. For example: You have a highly appreciated rental property and believe that the market will be soft for years to come, so you opt not to use a 1031 like kind exchange. Donate the property to a charitable remainder trust, and you will get a current income tax deduction and an annuity payable for life (great security in light of your new uncertainties). You will avoid capital gains taxes on the sale. This plan can help you financially and medically, and it will simplify your life reducing stress (instead of managing the property you collect a check from the trust). Call the National MS Society 800-923-7727.
Partner/Spouse’s Planning: If your partner/spouse is your caregiver, that role can occupy time and emotional capital. Simplifying his or her financial life will help them help you. Your partner/spouse should also revise their estate planning documents to assure that any assets left to you are left in a trust to provide a management structure in case you need it. Ask an estate planner if a special needs trust is advisable. If you have been named as agent, executor or trustee, it’s probably fine that you remain in that capacity so long as possible, but consider naming a co-fiduciary, perhaps a bank. This will enable you to continue to serve in those important roles, but with the help and support you might need in the future.
Power of Attorney: You may have permitted your agents to make gifts. The economic reality of your diagnosis may have you reconsider and actually prohibit gifts to preserve resources for your now uncertain future. Most powers of attorney do not address compensation for an agent. With the possibility of someone having to help you manage your affairs on a long term basis, reconsider authorizing your agent to take compensation for what might be a more significant task. Include an express power of your agent to fund a revocable trust. Reconsider not using a “springing power”. A springing power only takes effect if you are disabled; however with MS you might have periods when you can handle financial matters, interrupted by brief periods when an agent’s assistance might be necessary. If the appointment of your agent is effective immediately, the agent will be able to help during an exacerbation or relapse, and then can cede control back to you as soon as you are able. With a springing power, by the time the agent can legally demonstrate your disability, the need for help may have passed.
Revocable Living Trust: While these trusts are almost always hawked to avoid probate, their most powerful and beneficial use is in helping you manage assets through illness and disability. With some creative tailoring a living trust can assure you the maximum control of your financial life and provide the most comprehensive protection if your abilities fail. Be certain that your trust provides for a clear mechanism to determine when your position as trustee should cease and successor trustees should take over. With a disease such as MS you may need someone to step in during an exacerbation of the disease, but then you might resume control of all your affairs when it subsides. Your trust needs a practical and readily implemented “switch”. The mechanism by which a successor trustee can demonstrate your inability to serve as trustee so that she can take over could be tailored to reflect the cognitive impairment or spasticity that you have experienced. You might also consider naming an initial co-trustee to serve with you so that during periods of exacerbation the co-trustee can handle business and financial affairs for you without having to surmount a mechanism to become appointed. This is quite different than the manner in which most living trusts are drafted. Also, use the living trust to provide some level of detail as to your care in the future: where and how you would like to live, etc. Few living trusts address these details. A comprehensive trust will guide your chosen trustees as to how to help you. The trust, a living will, health care proxy, and power of attorney may avoid your ever having to face a court guardianship proceeding in which a judge may designate someone (and not always someone who you want) to be in charge of your affairs.
Investments: The fatigue which commonly accompanies MS, exacerbations, and possibly significant disabilities can make it difficult to manage assets. Consolidate and simplify your assets. Select a bank, or a wealth manager that can hold all of your investments and provide comprehensive planning services. Even if you continue to pick your own stocks for now, consolidate assets into an institution that can provide the full array of services. As you need additional services, you will be situated to obtain them. This will simplify recordkeeping, which at some point you may not be able to handle. Complete a comprehensive budget and investment plan. Consider what the impact of your illness might have on near and long term earnings of yourself and a caretaker spouse. Consider the impact of costly medications if insurance now, or in the future, may not cover them, modifications to make your home more accessible, etc. Re-evaluate your risk tolerance. New uncertainties may warrant reducing investment risk. On the other hand, budget projections might demonstrate that you require greater investment risks to meet your goals.
Conclusion: Chronic illness changes aspect of your planning. Be proactive and begin creating the safety net you might need, while hoping that you will not. PP
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