Tom Batterman has an aging client in a nursing home who is spending an “irresponsible” amount of money on contests. “We’ve broached the subject with some of her caregivers,” says Batterman, of Vigil Trust and Financial Advocacy in Wausau, Wisconsin. But “unfortunately no one will go out on a limb and say she’s incompetent enough to require a guardian,” he laments, “and so there’s not much we can do.”
Mental competence is just one area planners must watch closely as their clients age. It is vital that paperwork be in place to forestall situations like that facing Batterman’s client. The time to act is when clients are healthy and in full possession of their faculties, not when age is taking its toll on their judgment and mental capacity.
In the first part of our series on serving the older client, we discussed the scope of the challenge. This month we look at specific strategies planners are using for their older clients. Planning for the elderly is not a static exercise, but as clients’ situations, the markets, and tax laws change, the prudent planner must revisit wills, living wills, trusts, and powers of attorney to make sure that clients are protected not only from the vagaries of the market, but from their own frailty.
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Perhaps the most important piece of advice in serving older clients is to keep open the lines of communication. Take the example of a client of Adam Kirwan, an Orlando, Florida, estate and trust advisor and attorney. “I had one woman who thought her daughter would be the ideal person to be named on her living will [as decision maker],” he relates. But Kirwan is a firm believer in getting his clients to talk with the people they want to name in any capacity on such documents, so that both client and potential guardian or trustee know the client’s wishes, and whether the potential guardian can fulfill those wishes. He insisted that his client, who still has her full faculties, talk to her daughter. Afterwards the client told Kirwan she was glad she’d had the meeting. The daughter, it turned out, had beliefs that would have prevented her from removing artificial life support for her mother, if need be, says Kirwan, meaning she would be unable to fulfill her mother’s wishes in the living will. Many clients themselves, according to Kirwan, don’t know what they really want. It isn’t until he gets them to write down their wishes–not only for living wills but also for their estates and the legacies they want to leave–that clients realize either that their ambitions can’t be fulfilled, or that there are many options in achieving those wishes.
Kirwan treats clients with family businesses the same way, and finds it helpful to involve other members of the family as part of the planning process. Sometimes, he points out, children have no desire to be part of the business. In such a case, it’s necessary to educate those who will receive the business “so they will know how to liquidate the company properly.” Oftentimes when a client or a key person in the business dies or is incapacitated, says Kirwan, “it’s amazing how little information anyone else has.”
Among the issues to consider in getting clients to plan for succession or end-of-life issues is the creation of a durable power of attorney, making sure that a trust is drafted properly, and if the client becomes incapacitated, designating trustees. Kirwan says that many times clients will say, “If I die and my wife survives me, I want this series of trustees. If we’re both gone, I would want these [other] trustees.” Have the clients make a list, he counsels. Who do they want to serve as trustees for their children? For that matter, who do they want to serve as their own guardian should such a need arise?
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Secondly, don’t take a client’s first utterances at face value. Kirwan suggests that when you’re trying to help clients figure out an estate plan, don’t necessarily accept their first statement on the matter. They may not be thinking of all the possibilities, and they certainly may not be thinking in dollar amounts. Get clients to ask themselves how much their kids really need. Sometimes clients will come up with a “number that’s greater than they can leave,” says Kirwan. Other times, he adds, clients find they don’t need as much as they had thought.
An increasingly popular alternative for some clients is the incentive trust, particularly if the clients fear their children may become lazy as recipients of outright bequests of large amounts of money. Says Kirwan, “We’ll do trusts that will pay them a minimum amount, maybe $50,000 or $60,000 a year, and above and beyond that they’ll get a multiplier on earned income.” He explains that a trust beneficiary earning less than $50,000, for example, might get a 25% match, while a beneficiary making more might get a higher percentage match.
One of older clients’ greatest challenges may involve paying for nursing home care. Batterman points out that there are alternate ways of getting assistance. While outright gifting will disqualify a Wisconsin resident from receiving assistance for a period of time, for instance, it is possible to calculate how much money it would take to pay for care during that period, and with the correct structuring of the portfolio, use earnings from an asset or other sources of income to meet those expenses. Another strategy he says his firm has used is to buy an immediate annuity payable for life. In one such instance, a husband was institutionalized and the wife was the at-home spouse; she had no room under the asset exemption, says Batterman, to preserve assets, but she did under the income exemption. By converting the husband’s assets into an income stream, it allowed her to keep that money when otherwise she would not have been able to. The risk, he points out, is that it must be an immediate life annuity; it can’t be period certain or it’s considered an asset. “You run the risk of buying it and having the person die the next day and you get nothing,” he warns. In the case above, however, he says it worked well; the husband “long outlived what they built into the immediate annuity.”
There’s also the option, he mentions, of keeping a home in the family by structuring an installment payout, converting the home (asset) into a stream of income “such that the nursing home only gets contract payments and not the asset itself.” He points out that the ability to do this may differ according to state law.