Estate and Financial Planning for those Living with Chronic Illness or Disability pt5
By Martin Shenkman, CPA, BMA, JD
Expenditures.
Will there be a surviving spouse or
children or others who must also be provided for.
Large items to budget.
Investments.
Consolidate, simplify and automate.
The easier to manage investment and cash accounts the better. Do this
before your disease progresses to substantially that it becomes a
challenge to do so.
CDARs is a program that permits you
to have certificates of deposit (CDs) spread to many institutions in a
simplified and consolidated manner with one institution.
If the illness is life threatening
may need more liquidity.
Some corporate bonds have a higher
interest rate than a short term fund but the owner will get par on the
bond on death. These can present an interesting planning tool for those
with life expectancy limitations. Buying a 30 year bond for someone with
a significant health issue may seem counter-intuitive but it might be
ideal for some reasonable portion of the expenses with these special
features.
Some REITs have a death benefit
protection.
Variable annuity products might have
guarantees of principal back at death.
Spousal beneficiary IRA, spouse does
not have to take requirement minimum distributions but can access account
without penalty before 59 ½ so this could be an ideal place for an
investment product with a death benefit feature.
Liquidity options.
Immediate annuities are underwritten
for people with health issues and they will pay a higher distribution.
These are underwritten like a life insurance policy. If they live beyond
their reduced life expectancy they will have benefited from the richer
cash flow during the interim.
Risk, liquidity and similar issues
must be considered in light of their specific situation.
Shop for better interest.
Pension
Planning Considerations.
Some have lifetime benefits with
minimum term certain. Selecting the best option for the client’s unique
circumstances can make a significant difference.
Separation of service might be
caused by illness. If there is company stock in the qualified plan may
have NUA, net unrealized appreciation. It the employer stock has
appreciated they may take the stock out of the 401(k) and only pay tax on
the cost basis. Might be able to use losses to offset gains and get a lot
of money out of 401(k) tax free.
If out of work and in a lower
bracket a Roth conversion might make sense. If there is an anomaly in
their income in a particular year it might swing the decision in favor of
Roth conversion.
Loans on 401(k)s can be problematic
in the event of a separation of service.
Safe
Deposit Boxes.
Access is important if there is
documents there.
Access codes to social service
sites, answering machine, financial accounts, email accounts, etc. Many
bills and key financial matters are handled electronically and addressing
this is critical.
Charitable
Giving and Chronic Illness.
Charitable remainder trusts (CRTs).
Charitable lead trusts.
Key is to tweak and tailor common
charitable planning tools to meet the specific needs of the client who is
living with a chronic illness or who has a loved one living with a
chronic illness.
Charitable gift annuities (CGAs) are
a popular tool, especially for those living with chronic illness. You can
benefit an organization that is serving those living with the same
illness you have, obtain an assured periodic cash flow that can help put
your finances more on automatic pilot, and obtain a current contribution
deduction.
Income Tax
Considerations and Chronic Illness.
The tax laws have many special rules
and exceptions to address health issues. These are often technical
nuances to general rules. While most accountants and tax advisers are
familiar with the general rules, they may not be aware of the detailed
nuances unique to chronic or other illnesses.
Basis step up or down at death. Carefully
evaluate who owns what assets.
IRC Sec. 1014(e).
72(t) distribution from IRA, you can
split IRA and use this for only part. You can layer in the different
calculations.
