It's been three years since I wrote “Planning today for potential addiction tomorrow.” The article created an agenda for a webinar outlining steps baby boomers can take to prepare to handle investments, insurance, long-term care and other issues before they lose the ability to handle those issues on their own.
I followed up with several other articles on selected topics along the common theme of helping wealthy individuals become better-informed consumers of products and services related to aging and potential addiction planning. But there is much more to say, particularly about how advisors, who often work creatively and collaboratively, can play a more meaningful role in this critical aspect of their clients' planning. Here are some thoughts on how they can do this.
The biggest risks
Always the linear thinker, I will address planning topics in descending order of the risk individuals and couples are taking by not having a certain component of a plan or by having one that does not serve its intended purpose. In anticipation of the question, note that I will not discuss the need for a basic estate plan. However, I will propose a broader and multidisciplinary working definition of a “basic estate plan”.
A broader guidance memorandum
I'll start with the memorandum of instructions for the surviving spouse, which is a document that each spouse would prepare for the other. The memorandum contains key information for the survivor about where the couple's investments and other accounts are and how they are maintained, which advisors and institutions to contact, along with their contact information and much more. I recently reviewed it on “Boomers refocus their home extension planning.” The more I have thought about the purpose and scope of the memorandum, the more I am convinced that it can be given a wider purpose and a wider dramatic scope.
As vital as the memorandum is to the surviving spouse, a similar type of memorandum would be equally vital to the spouse who was heavily dependent on their spouse now unable to manage important aspects of their affairs. Therefore, the memorandum should have three parts: (1) A list, suitable for framing in a matrix, of all contact information for counselors and services that the spouse will need in the event of the spouse's incapacity or death; the other spouse; (2) Instructions that would apply in the event of disability; and (3) Instructions that would apply in the event of the spouse's death. This is just my proposed base case for document submission. However it is done, the whole will be greater than the sum of its parts. I will come back to this point when I talk about advance directives.
This memorandum is the one document that most spouses would reach for for the first time in a time of great stress. However, it is missing from most plans. Why? Perhaps because it is not the commercial or technical province of any single consultant. Instead, its composition and maintenance require a team approach, led by a planning-oriented advisor who can speak enough of the other advisors' languages to get the job done. This is not an approach usually associated with planning for the merely wealthy.
So, I hope that advisors who feel qualified to broach the subject with clients will do so, offering to work with their other advisors to prepare the memo. I can't think of a more valuable contribution to client planning and peace of mind. Nor can I think of a more effective way for advisors to extend their services to clients while collaborating and connecting with other advisors. Incidentally, I'll bet that any advisor who hasn't done their memo will be a better advisor soon after they do.
Asset Insured Plan
Having just expanded the working definition of an estate plan to include a Memorandum of Guidance, here is the next step in my expansion program.
I've never worked with a life insurance agent who didn't ask if I had an up-to-date estate plan. But I don't recall a lawyer asking me if I had enough life insurance. Okay, maybe they figured I might have some idea of what I was doing in that department. But it's not just about me. I've attended many presentations and read many articles on estate planning, and most stay within the confines of the usual documents and administrative steps that are supposed to comprise an “estate plan.” However, ask the widow whose deceased husband had a full binder of documents but not enough life insurance if her husband had an estate plan. What do you think she meant?
I encourage advisors to consider the term “estate plan” in its broadest, most comprehensive sense. I encourage them to think of the estate plan as a dynamic structure that goes beyond documents to provide appropriate resources for the survivor and guidance for the survivor to deploy those resources. This means that life insurance and financial planning should be considered integral components of estate planning. The fact that they are not is a real problem. Just ask that widow. For background on this topic, see “Life Insurance Planning for the Simply Rich.”
“Say what?” Estate plan
I often hear clients describe their great relief after they finally have their estate plan in place. On the other hand, I have also heard many surviving spouses complain, with varying degrees of anger and frustration, that they wish they had paid more attention when the attorney outlined the bequests in the estate plan. This is because they now realize that they do not have unfettered access to their “own” money. The lament continues, “So this is the price I'm paying to save on estate taxes for the kids. I hope they appreciate it.” I would appreciate it if someone would write an article in a widely distributed publication on “Top things to understand about your estate plan before it's too late and what to do if you don't like what you see.” I think that would send a lot of spouses running to their papers and then maybe back to their attorneys' offices.
Reasons to keep or sell the policy
Spend a few minutes analyzing life insurance discourse today and you'll find no shortage of fair or partially planning-oriented “information” on why to buy a policy or sell one. But try to find objective, in-depth and practical advice on the full range of options for dealing with an existing policy. Surrender? This is because while there is a lot of money to be made in selling new or existing policies, there is little to be made in advising on how to deal with old policies, unless, of course, there is a transaction imminent, such as an exchange or a redemption of life.
I addressed this topic in “A boomer at the crossroads of a vintage policy,” “Residence Life – Planning Considerations Beyond Supply” and other articles. I would like to see more experienced life insurance professionals, ideally those also versed in LTC products, take a breather from praising or burying indexed universal life and lay out a process, outlined by a decision tree, which can help policyholders understand what they own, evaluate it against their needs, and then explore the full range of options to hold it for current or future use and so on.
Working with fiduciaries
As much as estate planners love to talk about trusts, I've noticed that many don't like to talk about corporate trustees and, for various reasons, are reluctant to make recommendations. They are also not particularly interested in preparing clients to interview trust companies. In fact, trustees graciously provided most of the background for my articles on interviewing trustees. Trustees sometimes express their strange frustration with that reluctance.
The point is that those who are wealthy are almost self-conscious when it comes to understanding how to identify, interview, select, work with and monitor fiduciaries. So, I'd like to see some well-seasoned relationship managers from trust companies pick up the hand, or maybe just the pen, and address this reluctance directly with estate planners and, indirectly, with the public. A key subset of that discussion would be how the more financially savvy spouse, who has the primary relationship with the trustee, monitors the accounts, and so on, can create a framework to provide continuity of service, support and monitoring for their spouse if they lose capacity or die.
Advance directives
For many boomers, the problem isn't what advance directives to have, it's who to name in those documents. This is because, apart from their spouse, they have no one who is not as old as them and who does not deal with the same issues. This is why, as part of the interview and selection process, senior care-conscious individuals should ask corporate trustees to describe their services in the event of a client's disability. It would be a good idea to include a geriatric case manager in that discussion. I wish trust companies were as broad on this topic as they are on wealth transfer and estate planning, which are topics of little interest to this demographic. I will leave it to the experts to decide whether and to what extent the newly expanded Guidance Memorandum may be useful to a trustee in this situation.
Cash flow forecasts
I would add another segment to the usual retirement investing discussion, a segment intended for the merely wealthy. Every client should see a projection of their cash flow and equity through life based on whatever assumptions they believe are reasonable. Forecasts should include the impact of such unpleasant events as the death or disability of the spouse. There's nothing like a long-term cash flow projection to confirm one's financial behavior or suggest some mid-course corrections to keep the plan on track. This is the province of the investment advisor or financial planner, with input from the tax advisor when appropriate.
The LTC conundrum
Unlike the discourse quality in life insurance, quality in LTC has improved significantly over the years. There is a lot of good information about the spectrum of products that offer LTC benefits, although determining which, if any, is right for a given individual remains a challenge. I would like to see experienced life insurance and LTC professionals, elder care advocates and geriatric case managers collaborate on presentations or articles on a holistic, non-commercial approach to integrating planning, products and services that should form the basis of the LTC component of the estate plan.