How advisors can best serve clients after a cancer diagnosis
Cancer is a difficult reality that will confront many clients, advisors and their staff. Roughly one in two men and one in three women will develop cancer in their lifetime, according to The American Cancer Society.
Given these statistics, most of us are likely to be touched directly or indirectly. Advisors can be there to guide clients in planning for a cancer diagnosis, and they should be prepared to respond when clients fall ill.
Planners routinely address the uncertainties of disability and encourage clients to plan for it. This includes retirement planning, creating a rainy day fund, buying disability income replacement insurance, arranging long-term care and more. This same level of planning should go into preparing for life-threatening illness.
Too often, after any negative health diagnosis, clients may panic and take impulsive actions that harm their financial security. Planners should communicate to clients that they are available to assist as the client, and client’s family, as they cope with the complex challenge before them.
Recommend a meeting with your client to prepare an inventory of matters and a prioritized list of steps. By creating such a list, the client can be assured they will devote the least amount of time and mental energy possible to financial matters until after they have addressed medical issues, but also not make any decisions that may harm their financial standing or miss critical deadlines.
For example, the client may continue all existing insurance in force until there is time to meet and evaluate it. However, if there are options to convert a life insurance policy that might expire, these should be addressed.
For ultrawealthy clients who own property, an adviser's starting point should be an irrevocable trust. But you can't stop there.
Consider the following when meeting with your client regarding a cancer diagnosis or the possibility of one:
- Should gifts be made to family members, or should all gifts cease as funds may need to be preserved for treatment?
- Are there reporting requirements under disability, long-term care or other insurance policies?
- Are there waivers of premium under life, disability or other policies that might be activated?
- Does the client have a taxable estate? Might the client’s estate be taxable if there is a change in Washington in 2020? Depending on the diagnosis, estate tax planning and income tax planning will have to be tailored carefully. For example, client assets such as a family business can be sold to a trust to reduce the value of the client’s taxable estate. Will that be preferable to retaining the business in the estate to obtain a step up in basis? If an annuitant has a shortened life expectancy, the IRS can argue that the tables normally used to calculate the annuity amount are inappropriate. If the client has a longer-term survival expectancy, a sale for a private annuity could result in a negative wealth transfer if the payments the trust must make back to the client continue for a long period.
- Review and reconsider all business and professional practice succession plans. What might have to change? What magnitude of medical and related costs might the client incur personally, and how does that affect their planning?
- What impact might the cancer diagnosis and treatment have on the client’s ability to work now and into the future? How should planning be modified?
- Whom will the client rely on for care, and what will the cost of that assistance entail?
THE DOCUMENT REVIEW
All existing legal documents should be reviewed and evaluated. Here are some key matters to consider:
- Are beneficiary designations correct? If heirs were left interest in retirement plans directly, suggest instead that clients designate a trust, perhaps structured as a see-through trust, to protect those assets.
- Review all irrevocable trusts under which the ill client may have been given the right to designate who receives the trust assets (called a “power of appointment”). In many instances, these powers may be applied to allow trust assets to be included in the power holder’s estate, thereby qualifying those assets for a step-up in tax basis upon the ill client’s death.
- Be certain the client has up-to-date estate planning documents. Discuss with the client’s attorney what flexibility can be integrated into those documents if they are revised, in case the client will not have the ability to modify them in the future. Addressing potential future tax laws is important for a client who many not be able to change provisions in the future. It may be useful to give grantor powers to various people to modify terms of trusts, change distribution patterns or allow assets to be included in the ill client’s estate (or not).
- Health care documents, including the health care proxy designating an agent to make medical decisions, and a living will that sets forth the client’s wishes for health care matters, should be updated. If documents are set prior to diagnosis, they should be revisited upon diagnosis, as a client’s outlook can change dramatically depending on the situation.
- All shareholder, partnership, employment and similar business agreements should be reviewed. What types of salary continuation provisions are there? What happens if a client is unable to work during a period of treatment? Will buyout provisions be triggered?
UNDERSTANDING THE PROGNOSIS
To plan effectively once there is a diagnosis, the advisor must understand the specifics as much as possible. Is there a relatively clear prognosis? This can be a difficult topic to broach with a client, but understanding any expected timelines available can also be of great help to clients and their loved ones.
- Shorter life expectancy. A shorter life expectancy might demand that client estate planning documents, beneficiary designations and so forth be reviewed immediately, even if this is inconvenient to the client.
- Moderate life expectancy. A somewhat longer life expectancy might mean updating of documents can be deferred, at least for a few months. If the client is anticipated to live more than one year, the client’s spouse might transfer all appreciated assets into the name of the ill spouse. If the ill spouse survives one year after that, all appreciated assets transferred will receive a basis step up on death, thereby eliminating any capital gains that accrued prior to transfer.
- Long or normal life expectancy. A longer life expectancy might indicate significant tax planning opportunities. All the robust estate planning measures any client might consider may be reasonable to discuss and pursue.
- Impact of treatment. Chemotherapy, radiation, pain medications and so forth may make it difficult or impossible for a client to make decisions or sign legal documents. Thus, it is imperative that advisors understand the quality of life the client might have during their remaining time, and the impact this may have on the client’s cognitive abilities. The client’s loved ones may have to step in to handle the communications.
- Revise assumptions. With amazing advances in cancer research, treatments and more, the initial information provided concerning the client’s condition may change. Advisors should try to stay in periodic communication with the client or the client’s family to obtain medical updates, as they could have a significant impact on planning.
GATHER RELEVANT DATA
To properly advise a client, the advisor will need accurate information. They should obtain client permission to discuss relevant planning data with key family members in case this is necessary.
Often, because of the emotional stress or the impact of treatments, clients will be accompanied to medical meetings by a friend or family member. Encourage that friend or family member to take notes so they can help convey accurate information to the client.
Many cancer patients will have a palliative care team assisting them. These teams often include a social worker or other professional who is trained and charged with communicating with the client/patient about financial matters. This may be the ideal person with whom the advisor should communicate.
In some instances, it might be necessary for the advisor to communicate directly with the client’s physicians. This will require an appropriate authorization, likely in the form of a Health Insurance Portability and Accountability Act release.
A cancer diagnosis can understandably be very distressing for a client. Even discussing the possibility of such a diagnosis can be challenging for everyone. A proactive, sensitive and involved advisor can help clients understand how they can best manage this difficult life event.