When a loved one’s mental aptitude begins to subside and they are falling ill, finances are likely to be the last thing you consider, but they are an aspect that needs to be addressed. From retirement plans to insurance policies, far too often assets are not managed or protected correctly when a spouse becomes sick and is unable to handle things on their own.
The lifestyle of the healthy spouse is at stake and could be irreparably damaged if the appropriate steps aren’t taken. For the family, the legacy and inheritance are in jeopardy. While it is natural to hope for the best outcome, it is vital to prepare for the worst.
When a spouse begins to lose their mental well-being, the first step is to create powers of attorney (financial and medical), so the healthy partner can transact on behalf of the ill spouse. Once this is taken care of, the family should be notified. Make sure the parties (brothers, sisters, heirs who you love trust and respect) are aware that you are beginning the process of asset preservation. It is important to make the message clear that you are not asking for advice or surrendering control. You are simply making the family aware that the finances are being handled to avoid potential issues that could occur in the future.
If you are competent to handle the financial matters, don’t surrender control to other family members. Just because your spouse is sick, you don’t have to give everything to the kids right away or have them make decisions. Many times when children take the reins, the way they handle finances syncs with their personal financial plan (i.e., they manage money as a 20, 30 or 40-year-old, not like the surviving spouse who may need to make these assets an income).
The healthy spouse, who is now in control of the finances and has power of attorney, needs to focus on preserving assets first. As few assets as possible should remain in the sick spouse’s name.
There are certain items that are difficult to manage because you cannot change ownership (IRA or 401(k), for example). In these instances, the account can be annuitized and pay income to the healthy spouse. If the husband is in failing health, his wife uses her power of attorney to turn his IRA into a pension for herself. This is only possible if you are married and on the same tax return. This becomes the healthy spouse’s pension and it is now exempt from outside sources acquiring it for financial needs.
Generating an income from the assets and growing wealth are other important areas to consider when taking over the finances when your spouse falls ill. While this is essential for many, preserving the assets and ensuring that the healthy partner now controls financial matters is the top priority.
Matt Taylor, CFP
Matt Taylor, CFP, is the founder and president of Taylor Retirement Services in Harrisburg, Pa. He has been providing financial and retirement services for nearly 20 years. For more information on Matt Taylor and Taylor Retirement Services, visit www.taylorretirementservices.com or call (717) 232-5808.
