Chronic Illness Requires Special Planning

A close friend was recently diagnosed with Multiple Sclerosis (MS).  The course of MS is unpredictable; the effects range from mild to devastating.  Such a diagnosis affects every aspect of your estate and financial planning. Some of the modifications are minor, some significant. Some steps should be implemented immediately; others can be viewed as more long term goals. Remember, just as everyone's experience with any chronic disease is unique to them, your planning, while it should consider the potential impact of your illness, must be tailored to address your personal circumstances. While this article refers to MS, the planning is similar for any chronic illness.

Living Will:

A living will is a statement of your health care wishes. Discuss yours with an MS support group, your neurologist, and others knowledgeable about your condition so that you can tailor the language to reflect nuances appropriate to your situation. Few lawyers will have the background to do this without outside input. Avoid cheap internet forms, they'll never provide the sophistication and detail you really need. Reconsider organ or tissue donations. Perhaps the reality of your situation will enable you to reconsider donating tissue for MS research to help others. If you agree, be sure the language is specific enough as to what you want done so that your donations will be used for MS research. Include a guardian designation in your health care proxy.

Fiduciaries:

Trustees, executors, agents under a power or health care proxy are generically referred to as "fiduciaries". When you disclose your diagnosis to close friends and family you might well be surprised by the reactions. Friends may be at your side and unbelievably supportive with a soft shoulder, or dinner by a lake, to cheer you up. An old high school friend may renew a valued friendship. Yet, a parent or sibling expected to be the most helpful, may prove conspicuously indifferent and absent. A teenager may show sensitivity and maturity beyond his years (yes, a teenager might actually look up from the computer screen!). Reevaluate who you designate as fiduciaries in light of how these key people have shown their true colors since your diagnosis. You will need to rely on your fiduciaries in vital ways. Choose them carefully for what they have shown they can do, not out of obligation or guilt. Reconsider the merits of naming an institutional co-trustee to assure independence, and to lessen the burden on say a friend who has proven true but cannot afford the time to handle all your affairs.

Charitable Planning

Creative charitable planning techniques have always been able to provide income tax deductions, gift and estate tax benefit and the joy of contributing back to society. With your new diagnosis, perhaps major planned gifts you were toying with should be brought to fruition in a manner that can best help you financially and promote MS research. Example: You have a highly appreciated rental property and believe that the market will be soft for years to come so you opt not to use a 1031 like kind exchange. Consider donating the property to a charitable remainder trust. You'll qualify for a current income tax deduction for a portion of the fair value of the property, you can receive an annuity payable for the rest of your life (great security in light of the new uncertainties you face), and you'll avoid capital gains taxes on the sale. This type of transfer not only has significant tax benefits, it can help you financially, potentially medically, and it will simplify your life reducing stress (instead of collecting rent for a score of tenants, you'll open your quarterly check from the trust). Call the National MS Society 800-923-7727.

Partner/Spouse's Planning:

If your partner/spouse is your caregiver, that role can occupy time and emotional capital. Simplifying his or her financial life will help them help you. Your partner/spouse should also revise their estate planning documents to assure that any assets left to you are left in trust to provide a management structure in case you need it. Ask an estate planner if a special needs trust is advisable. If you've been named as agent, executor or trustee, it's probably fine that you remain in that capacity so long as possible, but consider revising documents to name a co-fiduciary, and possibly a bank. This will enable you to serve in those important roles but with the help and support you might need in the future.

Power of Attorney:

Review provisions in your power. Until now you may have permitted your agents to make gifts. The economic reality of your diagnosis may have you reconsider and actually prohibit gifts to preserve resources for your now more uncertain future. Most powers of attorney don't address compensation for an agent. With the possibility of someone having to help you manage your affairs on a long term basis, reconsider authorizing your agent to take compensation for what might be a more significant task. Include an express power of your agent to fund a revocable trust. Reconsider not using a "springing power". A springing power only takes effect if you're disabled. But with MS you might have long periods when you can handle all financial matters interrupted by brief periods when an agent's assistance might be helpful, or even necessary. If the appointment of your agent is effective immediately the agent will be able to help during an exacerbation or relapse, and then can cede control back to you as soon as you are able. With a springing power, by the time the agent can legally demonstrate your disability, the worst of your relapse may have passed.

Revocable Living Trust:

While these trusts are almost always hawked to avoid probate, their most powerful and beneficial use is in helping you manage assets through illness and disability. With some creative tailoring a living trust can assure you the maximum control of your financial life and provide the most comprehensive protection if your abilities fail. Be certain that your trust provides for a clear mechanism to determine when your position as trustee should cease and successor trustees take over. With a disease such as MS you could need someone to step in during an exacerbation of the disease, but then you might resume control of all your affairs when it subsides. Your trust needs a practical and readily implemented "switch". The mechanism by which a successor trustee can demonstrate your inability to serve as trustee so that he or she can take over could be tailored to reflect the cognitive impairment or spasticity that you have experienced. You might also consider naming an initial co-trustee to serve with you so that during periods of exacerbation the co-trustee can handle business and financial affairs for you without having to surmount a mechanism to become appointed. This is quite different than the manner in which most living trusts are drafted. Also, use the living trust to provide some level of detail as to your care in the future: where and how you would like to live, etc. Few living trusts address these details. A comprehensive and well crafted trust will not only guide your personally selected trustees as to how you want them to help you, but it might (along with a living will, health care proxy and power of attorney) avoid your ever having to face a court appointed guardianship proceeding in which a judge may designate someone to be in charge of your financial and/or personal affairs (and not always the "someone" you want).

Investments:

The fatigue which commonly accompanies MS, exacerbations or attacks, and possibly more significant disabilities, can make it difficult to manage assets as you may have before. Consolidate and simplify your asset holdings. Select a bank, trust company or wealth manager, that can hold all of your investment assets and provide comprehensive investment and related planning services. Even if you wish to continue to pick your own stocks for now, consolidate assets into an institution that can provide the full array of services. As you need additional services you will be situated to obtain them.  This will simplify recordkeeping which at some point you may not be able to handle. Once consolidated complete a comprehensive budget and investment plan. When preparing your budget consider what the impact of your illness might have on near and long term earnings of yourself and even a caretaker spouse. Consider the potential impact of costly medications if insurance now or in the future may not cover them, modifications to make your home more accessible, etc. may have on your budget. Re-evaluate your risk tolerance. You might feel that with the new uncertainties and costs that you need to reduce your level of investment risk. On the other hand, your budget projections might demonstrate that your new financial reality requires greater investment risks to meet your goals.