Tackling a Tough Topic
With more than a million people receiving cancer diagnoses each year, advisors should be ready to offer strategic and caring advice.
With 1.6 million people getting cancer each year, advisors need to offer strategic and caring advice.
CANCER IS A DIFFICULT REALITY THAT WILL confront many clients, advisors and their staff members.
Roughly one in two men and one in three women will develop cancer in their lifetime, according to the American Cancer Society. Statistics compiled by the National Cancer Institute indicate that more than 1.6 million cases of cancer are diagnosed in the U.S. annually and roughly 600,000 people die of the disease.
Given these figures, it is a grim reality that most of us are likely to be touched by cancer, directly or indirectly.
For advisors, all of this means that we need to be prepared to be there for clients when they receive a cancer diagnosis, and we should be in a position to respond skillfully when clients fall ill.
BUILDING ON THE BASICS
In carrying out their professional duties, planners routinely address the uncertainties of disability and encourage clients to plan for it. This skill set includes retirement planning, creating a rainy day fund, buying disability income replacement insurance, arranging for long-term care and more.
This same level of planning should go into preparing for life-threatening illness.
Too often, after any negative health diagnosis, clients panic and take impulsive actions that harm their financial security. Planners should communicate to clients that they are available to assist the client and client’s family as they cope with the complex challenge before them.
Recommend a meeting with your client to prepare an inventory of matters and a prioritized list of steps. By creating such a list, the client can be assured they will devote the least amount of time and mental energy possible to financial matters until after they have addressed medical issues, but also not make any decisions that may harm their financial standing or miss critical deadlines.
For example, the client may continue all existing insurance in force until there is time to meet and evaluate it. However, if there are options to convert a life insurance policy that might expire, these should be addressed.
Consider the following when meeting with your client regarding a cancer diagnosis or the possibility of one: Should gifts be made to family members, or should all gifts cease because the funds may need to be preserved to pay for treatment?
Are there reporting requirements under disability, longterm care or other insurance policies?
Are there waivers of premium for life, disability or other policies that might be activated?
Does the client have a taxable estate? Might the client’s estate be taxable if there is a change in the leadership in Washington in 2020?
Depending on the diagnosis, estate tax planning and income tax planning will have to be tailored carefully. For
example, if client assets include a family business, it might be advantageous to sell the assets to a trust to reduce the value of the client’s taxable estate. But that must be weighed against the possibility of retaining the business in the estate to obtain a step-up in basis.
Selling assets to a trust for an annuity can be a valuable planning technique. If an annuitant has a shortened life expectancy, the IRS can argue that the tables normally used to calculate the annuity amount are inappropriate. If the client’s life expectancy has not been substantially reduced, a sale for a private annuity could result in a negative wealth transfer if the payments that the trust must make back to the client continue for a long period. Review and reconsider all business and professional practice succession plans. What might have to change?
What magnitude of medical and related costs might the client incur personally, and how does that affect their planning? What impact might the cancer diagnosis and treatment have on the client’s ability to work now and into the future? How should planning be modified? Whom will the client rely on for care, and what will the cost of that assistance entail?
THE DOCUMENT REVIEW
All existing legal documents should be reviewed and evaluated. Here are some key matters to consider:
Are beneficiary designations correct? If heirs were left interests in retirement plans directly, suggest instead that clients designate a trust, perhaps structured as a see-through trust, to protect those assets. Review all irrevocable trusts under which the ill client may have been given the right to designate who receives the trust assets. In many instances, these powers may be applied to allow trust assets to be included in the power holder’s estate, thereby qualifying those assets for a stepup in tax basis upon the ill client’s death. Be certain the client has up-to-date estate planning documents. Discuss with the client’s attorney what flexibility can be integrated into those documents if they are revised, in case the client will not have the ability to modify them in the future. Addressing potential future tax laws is important for a client who many not be
If client assets include a family business, it might be advantageous to sell the assets to a trust to reduce the value of a client’s taxable estate.
able to change provisions in the future. It may be useful to give powers to various people to modify terms of trusts, change distribution patterns or allow assets to be included in the ill client’s estate (or not). Health care documents, including the health care proxy designating an agent to make medical decisions, and a living will that sets forth the client’s wishes for health care matters, should be updated. If documents were set up before the diagnosis was received, they should be revisited, as a client’s outlook can change dramatically depending on the situation.
All shareholder, partnership, employment and similar business agreements should be reviewed. What types of salary continuation provisions are there? What happens if a client is unable to work during a period of treatment?
UNDERSTANDING THE PROGNOSIS
To plan effectively once there is a diagnosis, the advisor must understand the specifics as much as possible.
Is there a relatively clear prognosis? This can be a difficult topic to broach with a client, but understanding any expected timeline can be of great help to clients and their loved ones. Here are some contingencies to be considered:
Much shorter life expectancy. A very short life expectancy probably means that the client’s estate planning documents, beneficiary designations and so forth should be reviewed immediately, even if this is inconvenient to the client. Moderate life expectancy. A somewhat longer life expectancy than in the first case might mean that the updating of documents can be deferred, at least for a few months.
If the client is expected to live more than one year, one strategic decision that may be worth taking is to have the client’s spouse transfer all appreciated assets into the name of the ill spouse.
Then, if the ill spouse is able to survive one year after that action is taken, all appreciated assets transferred will receive a basis step-up on death, thereby eliminating any capital gains that had accrued before the transfer took place.. Relatively long or normal life expectancy. A longer life expectancy might indicate significant tax planning opportunities. All the robust estate planning measures any client might consider may be reasonable to discuss and pursue.
Impact of treatment. Chemotherapy, radiation, pain medications and so forth may make it difficult or impossible for a client undergoing aggressive treatment to make decisions or sign legal documents. Thus, it is imperative that advisors understand the quality of life the client might have during his remaining time and the impact this may have on the client’s cognitive abilities. The client’s loved ones may have to step in to handle the communications.
Revise assumptions. In light of amazing advances in cancer research and treatments for certain scattered forms of cancer, the initial information concerning the client’s condition may change as treatment proceeds.
Advisors should try to stay in periodic communication with the client or the client’s family to obtain medical updates, as revised prognoses could have a significant impact on planning.
GATHER RELEVANT DATA
To properly advise a client, the advisor will need accurate information. They should obtain client permission to discuss relevant planning data with key family members in case this is necessary.
Often, because of the emotional stress or the impact of treatments, clients will be accompanied to medical meetings by a friend or family member. Encourage this friend or family member to take notes so they can help convey accurate information to the client and planner.
Many cancer patients will have a palliative care team assisting them. These teams often include a social worker or other professional who is trained and charged with communicating with the patient about financial matters. In many cases, this individual may be the ideal person with whom the advisor should communicate.
In some instances, it might be necessary for the advisor to communicate directly with the client’s physicians. This will require an appropriate authorization, likely in the form of a Health Insurance Portability and Accountability Act (HIPAA) release.
A cancer diagnosis can understandably be very distressing for a client. Even discussing the possibility of such a diagnosis can be challenging for everyone. A proactive, sensitive and involved advisor can help clients understand how they can best manage this difficult life event.
Is there a relatively clear prognosis? Understanding any expected timeline can be of great help to clients and their loved ones.
The author, his wife Patti (who has multiple sclerosis), and their therapy dog Elvis travel across the country for two months every summer to educate planners, CPAS and lawyers on ways to better advise clients living with chronic illness and...