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Portfolio > Asset Managers

Raising the Bar

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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.

Talk to Me

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?

What Do You Really Want?

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.

Frank Gencarelli, executive VP and director of the Retirement Services Group at GE Financial, and Cherie Hall, a GE income specialist, suggest other uses for annuities. Gencarelli points out that, in this day of vanishing pension plans and diminishing assets, a planner might execute one strategy for the “first 20 years of retirement,” when benefits might be expected to stay at an even level, and then use an annuity to provide income from age 85 on should benefits be reduced. Gencarelli says that the strategy utilizing GE’s product, Retirement Answer, can be implemented “at any time” as long as the annuitant is 75 or younger. Hall suggests another strategy. Say a client couple is receiving benefits on a husband’s pension, which will last either for his life expectancy or for 20 years, whichever is greater. If the couple funds the Retirement Answer product with a portion of that higher-dollar-value pension each month and if the husband passes away in the meantime, at the end of the 20 years the wife will receive the annuity from Retirement Answer; if the husband is still alive when the annuity is fully funded, both husband and wife will receive the proceeds of the annuity in addition to the continuation of the husband’s pension.

Uneducated or Unrealistic

You’re never too old to learn, and a client is never too old to be taught money management. Diane Pearson, a planner with Legend Financial Advisors in Pittsburgh, points out that often the planner must educate an older client about the basics of money, particularly if that client is a widow who has never handled money outside of the weekly grocery shopping. That education can be painful, as it was for a client of Pearson’s.

The client’s late husband had an estate that was, Pearson says, tied up mostly in retirement account assets rather than liquid assets. When he died, the widow took a large chunk of the life insurance proceeds and used it to buy a house in the Caribbean; she then proceeded to spend down nearly all the liquid assets. According to Pearson, the client is now “pretty much strapped” for cash; she must wait till each distribution from the retirement account. “If she really wanted this house in the Caribbean,” says Pearson, “she should have taken out a mortgage.”

Batterman further drives home the idea that clients may have unrealistic expectations, and not just with regard to money, when he tells of one of his clients facing a difficult choice. “Given the current configuration of assets,” Batterman says, “we were going to be facing depletion of the estate because of nursing home expenses.” However, he says, if the client’s home were sold and converted to cash, which would then be invested, there would be enough income to support him in the nursing home without depleting assets. “That, of course, forces the decision to sell the home, which the guy doesn’t want to do,” says Batterman, “because he thinks he’s going to go back home. They all think they’re going to go home.”

Sweet Charity

There are cheerier aspects to planning for the elderly, such as charitable giving. Take, for example, another client couple of Pearson’s. One of their sons died at age 33; the proceeds of his life insurance policy went to his parents. The couple, of Indian descent, set up a foundation, structuring it so that their other two children would manage it. Since both children are studying to be doctors, they plan on having the foundation provide funding for nurses from the U.S. to go to India to serve in very poor areas, all in their brother’s name. Says Pearson, “It’s something they can do, even though they don’t have millions, and it’s very cost-effective from their standpoint.” Pearson is working with Foundation Source on behalf of her clients (, and has good things to say about the Norwalk, Connecticut-based provider of private foundations. “They will allow you to set up a foundation at a very reasonable price, just a couple thousand dollars,” she says. “They handle all the administration and [the advisor] looks great [to clients].”

A Question of Balance

It used to be a given that clients’ asset allocation models would shift more toward fixed income and away from equities as clients aged. But changes in life expectancy and the prolonged bear market have led some planners to question that perceived wisdom. Matthew G. Kovalcik, a planner and branch manager in Columbus, Ohio, for Raymond James, says that he has changed his allocation strategy a bit over the last couple of years. Now he regularly rebalances the portfolios of clients who previously had not opted to do so. He has a lot of investors, he says, with a buy-and-hold mentality “who saw many people in the generation ahead of them get rich that way,” but now they’ve realized that it’s no longer the case. Most clients now, he says, are “on quarterly readjustment of the portfolio across all assets: cash, fixed income, equities.” He also has obtained discretionary approvals on accounts not already set up that way. “My argument was, we’ve all seen how quickly the economic landscape changes with the threat of war or attack,” he says. “I don’t want to have to wait a long time to make adjustments to these portfolios.” His clients, he says, have been with him long enough to know that he does what’s in their best interest.

He also mentions a dilemma that other planners may find more common as clients age. There are some, he says, who refuse to adjust their standard of living to accommodate a reduced portfolio. A few clients have told him, in fact, that they don’t care. They don’t know what tomorrow holds; they may not live beyond 70, so why shouldn’t they enjoy the money now?

When that attitude is just sheer stubbornness, there’s not much a planner can do. But if clients are choosing financial self-destruction because of impaired judgment, there’s a place to go, at least for Raymond James advisors. David Ness, president of Raymond James Trust Co., points out that Raymond James has a “reciprocal referral relationship” with Rona Bartlestone & Associates, in Ft. Lauderdale, Florida, a private company that specializes in eldercare management. Raymond James advisors have access to an expert through an 800 number that they can call if they are concerned about the declining mental capacity of a client, such as if they’ve “answered the same question 16 times in the last two weeks” from that client.

Says Ness, “Everybody has what we euphemistically call ‘senior moments,’ and it’s when you can’t tell when the last one has ended and the next one has started that you have some real issues about mental capacity and competence.” Raymond James thought it important to develop this arrangement, Ness says, whereby advisors can learn how to better assess whether a client is having one of those “senior moments” or is in serious need of help–and if the latter, just what the advisor should do.


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