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Recently, I received a tragic call from a financial planning client. While on vacation in Florida with his wife for their 35th anniversary, he noticed that she started to lose her balance and fall. The incidents, which had never occurred before, became much worse from Friday to Sunday as she complained of “constantly feeling dizzy.” On Monday they were seeing her primary care physician, and by week’s end a brain specialist. Scans revealed the worst: a brain tumor. Aggressive surgery removed all of the mass reachable, and a regimen of chemo and radiation was to be used to try to destroy the remaining cancer cells. But two months after surgery and at the start of the regimen, a brain aneurysm took her life.
The couple had engaged our services to provide them with financial planning analysis and recommendations, which we had provided. Although they paid for our services, considered our analysis and heard our recommendations, they didn’t actually implement the recommendations we gave them. They were both in their late 50s and believed, the surviving husband told me, they had plenty of time to get their financial house in order. In our last meeting, he shared some of the particular issues that arose over the crisis, which may be of help to others as they consider their own planning.
As we reviewed their finances, we noticed that the wife’s life insurance policy through her employer did not have a named beneficiary. We discussed our state’s intestacy laws—which govern how property is distributed if no direction is provided by will, contract or deed—and that one-third of her policy would go to her husband while two-thirds would be split equally among their three sons if she passed away. All three sons are in their 20s; two are still in college. The parents expected their children to be able to handle money wisely as they matured, but had no intention of putting almost $70,000 into each of their hands in their early 20s. Additionally, the husband may need the money that will be paid to his children to live off of in retirement in order to be financially secure. Not reviewing and updating beneficiaries on insurance contracts and tax-deferred accounts, such as corporate retirement accounts and IRAs, can lead to unintended consequences, as it did for this family.
In analyzing their information, we also noticed that no powers of attorney (POA) had been drafted when they had their simple will drawn up almost 20 years ago. In asking if any pre-formatted POAs (sometimes provided by investment account custodians to allow non-owners to provide direction on an account as allowed by the document’s stipulations) had been put in place for either spouse’s retirement accounts (IRAs can’t be jointly owned), we were told nothing had been drafted, executed or provided to any of their financial services companies. We talked about the fact that a custodian would not take direction from a non-authorized, non-owner of an account without authorization from a probate court if a POA or some other legal document did not provide for such, and that this could be an issue in some instances. Unfortunately, one of those instances arose as there were times he needed access to funds for her care, funds that needed to be withdrawn from her IRA as his small IRA was quickly exhausted. The custodian would not allow him to take the funds out while she was incapacitated in a drug-induced coma. He had to work through the probate court to get authorization to access her account for her behalf, which took time and money to do. As they realized, planning for the unexpected and having a system to cover for each other during periods of incapacity shouldn’t be overlooked.
It was apparent that lifestyle choices had led the family to also forgo a reserve account for emergencies. Typically, as family incomes rise so, too, does the family’s lifestyle, at times even more than the percentage increase in income. This can lead to liquidity risk, as it did here. When cash was needed, there was little available as most had been spent or placed into restricted accounts. In this case the couple was contributing to retirement plans that did not have loan or hardship provisions, so money in the plans was locked up until retirement. The couple kept roughly two months’ expenses split between their segregated bank accounts, which led to a scramble for cash when her medical needs arose. We had cautioned them on this risk and recommended they reduce some discretionary spending and stop funding their IRAs until they had built a larger reserve. They intended to do so, but never actually got around to it. Not having an adequate liquid reserve can have significant impact on a family’s financial security and should be a priority for most families.
The couple also had established separate credit cards with sole owners, one a MasterCard and the other a Visa. They had sent in forms allowing their spouse to be an authorized user. The wife, in particular, used her card heavily in order to accrue points. All grocery, restaurant, gas and other charges that could be funneled through her card were. She had accrued over 100,000 points, which had an expected value of over $1,000. When the husband contacted them after her death to “transfer her points to him as an authorized user,” he was told this was not possible and that the points would be lost as he was not an owner on the account, only an authorized user. When we had asked them if there was a particular reason they weren’t both owners, we had been told it “just happened that way. No real reason.” We recommended they add each other as an additional owner on the cards, but unfortunately, they didn’t get around to it. Thinking through the basic ownership decisions on financial accounts, products and tools shouldn’t be neglected as unintended consequences could occur.
All the planning in the world is meaningless without execution. There have been and will continue to be countless good financial plans developed and presented, but without implementation they are worthless. Financial planners, CPAs and estate attorneys often will help clients develop suitable plans to address their needs and make specific recommendations that the client agrees to but then never acts upon. Aside from the wasted money for the professional’s advice, families too often neglect the recommendations of their advisors, sometimes with avoidable but dire consequences. Don’t let neglect put you in a similar position.