12 Pieces of Financial Planning Advice for the Terminally Ill

Being diagnosed with a terminal illness is an overwhelming experience. While there are often many complex emotions that fill a person’s mind, it is important to not overlook the financial implications of such a diagnosis. Performing adequate estate planning now can make sure that a person’s assets properly pass on to their loved ones. Typically, there are two distinct financial phases when a person is terminally ill. First, the individual maximizes cash flows while paying for medical costs. Second, a person’s goal shifts to transferring assets to loved ones. There are many important strategies that a person who is terminally should remember to follow during this difficult time. By having the proper estate planning tools in place, a terminally ill person can make sure that his or her assets will be passed on in the desired manner. The following reviews some helpful advice to consider during this difficult time.

Have Honest Conversations

As difficult as it might be, it is critical to have candid discussions with your loved ones during this difficult time. Honest conversations about your finances can help your loved ones know what to expect. Also, this way when you do pass away, there will not be any uncertainties about how you would like your assets to be passed on after your death. After having these conversations, you should make sure to leave instructions to your loved ones that clearly explains your goals. These instructions can help your loved ones navigate any details that are not included in other estate plans. Some people even go so far as to include details in these instructions about funeral arrangements, obituary drafts, lists of insurance policies, and a description of a safety deposit box. 

Write or Update Your Will

One of the most important things to do if you are terminally is to make sure that you either write or update your will. Statistics show that less than half of the people in the United States have a will in place. Dying without this important estate planning document means that you will not be able to leave behind specific instructions about how you would like to allocate your assets after your death. Wills are one of the best ways for making sure that your plans for your estate are carried out.

Consider Creating a Revocable Trust

There are several alternative estate planning tools besides wills to pass on a person’s assets. For example, if you have substantial assets, a revocable trust is one of the best ways to avoid having your estate proceed through probate. Not only does probate take time,  but it can also be costly to your beneficiaries. The creation of a revocable trust involves transferring all of your assets into a trust whose terms can be modified or canceled. Distribution is then made from the revocable trust until the assets are transferred to your beneficiaries.

Make Sure to Write Medical Directives 

In addition to creating a will, you should also create advance medical directives that specify exactly what type of medical care you would like to receive in case you become unable to communicate. You should specify who will hold your medical power of attorney, which is someone you should trust to make medical decisions for you in case you are unable to do so.

Financial Power of Attorney is Also a Good Idea

It is also critical to appoint someone to make financial decisions for you in case you become incapacitated. These documents help your family avoid the complications of other guardianship or other costly estate planning processes. The person who is nominated to this position should be someone you trust with your finances.

Consider Gifting

Based on the value of your estate, it might be a good idea to begin to consider giving gifts to your loved ones soon after diagnosis. Passing on gifts while you are alive helps to reduce the amount that your estate will ultimately be required to pay in taxes.

Create a Plan to Share Your Passwords

It can be more than an inconvenience if your family members are left without a way to access your online accounts after your death. Fortunately, this problem can be easily avoided by creating a list of passwords for accounts, which are then passed on to a loved one. Doing this makes sure that your family encounters no difficulty in accessing your accounts in case something ever happens to you.

Avoid Spending Your Savings 

Various emotions commonly accompany a terminal illness including feelings of recklessness. Being diagnosed with a terminal illness, however, does not necessarily mean that now is the time to spend your entire retirement account. There are many cases of people who have received terminal diagnoses living far past the date that they have been given by doctors. Also, now is likely the time that you will experience an increase in daily living expenses as well as medical costs that are not fully covered by health insurance.

Be Mindful of Taxable Income and Yearly Deductions

In cases in which patients receive a diagnosis or begin to experience a medical condition early in the year, the patient’s lack of income commonly places them in a low tax bracket while their family members might be in a higher one. Consequently, in these situations, increasing the patient’s income can end up saving a substantial amount of money in taxes for the family. There are likely many medical expenses that are not covered by insurance including things like over the counter products and travel costs. If a patient passes away early in the year, the patient will not have a large enough taxable income for the year for the tax deductions from these costs to be of much impact. In these situations and if the patient is eligible, it is possible to increase taxable income by making a withdrawal from that person’s retirement account.

Consider Disability Coverage

Whether a terminally ill individual is still working can make a substantial difference when it comes to taxes. Group disability benefits are sometimes available from an employer. Workers’  compensation or Social Security disability might also be available. It is also sometimes the case that individuals have personal disability insurance, which can supplement group coverage. If a person pays for disability insurance with after-tax dollars, any of the benefits that the person receives will be categorized as tax-free. If a person’s employer pays a premium for disability insurance, however, the individual must report any disability benefits that are received as taxable income. 

Learn How Probate Works

You should anticipate how California or other applicable state probate laws will apply to your estate. This can often lead to restructuring how an estate is administered, which can, in turn, save time and costs associated with the distribution of assets after your death. For example, in California, most married couples who hold property do so as joint tenants with the right of survivorship. If a terminally ill person owes any assets as a  joint tenant with the right of survivorship, these assets or property will pass directly to the surviving co-owner (often a spouse) regardless of how assets are passed on in a person’s estate. One of the largest advantages to titling property as joint tenants with right of survivorship is that assets held in this manner will pass to the surviving co-owner without needing to pass through probate. This often results in a quicker and less costly property transfer. If you have questions or concerns about how this process will proceed, an experienced estate planning attorney can review the details of your case and provide you with a better understanding of how things are likely to proceed. 

Make Sure to Review Beneficiaries

There are some things like 401(k) and other retirement accounts that pass under the terms of beneficiary designations rather than what is contained in a will. Naming someone as a beneficiary is not as easy as some people believe it will be. One common mistake is to name an underage beneficiary to directly inherit assets. Underage beneficiaries, however, cannot inherit assets in this manner and a custodian must be named to act on the beneficiary’s behalf. It is also a common error to end up listing a former spouse as a beneficiary. This is why it is critical to not just name an appropriate beneficiary, but also to make sure that beneficiary designations are adequately updated.

Speak with an Experienced Estate Planning Lawyer

There are numerous challenges faced by the terminally ill, and the question of how to properly pass on your assets is one of them. To make sure that you have the strongest estate plan possible, you should not hesitate to speak with an experienced estate planning lawyer. Contact attorney Melanie Tavare today to schedule a free case evaluation.