Why it's not just about nursing homes.
September 22, 2011
For most of our clients, “eldercare” equates to “nursing home.” In fact one of the difficulties in discussing eldercare engagements with clients is that after the client immediately equates “eldercare” with “nursing home,” the conversation goes no further. While it's true that a majority of our clients will probably not end up in nursing homes it is also true that a good eldercare engagement must take into account the consequences of a devastating catastrophic illness falling upon the client. When the client responds, “I'm not going into a nursing home," an appropriate response might be to acknowledge that fact and yet remind them that a sudden downturn in their health can have a devastating impact on their financial well-being.
A proper eldercare engagement has to take into account the many financial obligations that our clients have. These financial obligations might include providing for the education of their grandchildren, providing for the healthcare of their disabled children, possibly caring for parents, making substantial charitable contributions and other community-based contributions, as well as commitments that spouses make to each other such as increased vacation time and spending on other leisure activities. All of these commitments are to be met in the period when our clients are no longer working, relying on their investment portfolio to provide income for the rest of their lives.
Most clients are not prepared for the financial impact of a catastrophic illness on one spouse. Many of them believe that the money they've accumulated in either a taxable investment portfolio or in their retirement portfolio can be used to pay for the cost of this care. That might be true in terms of absolute dollars, but these results in a substantially diminished family investment portfolio that will provide less income for the family to meet their ongoing obligations. In particular, the well spouse (who is staying at home) has financial obligations on an ongoing basis even though one spouse is institutionalized. In many cases the family expenses will increase as a result of the hospitalization and not decrease. The increased travel on the part of the well spouse must be paid for. Many of the services around the home that would be provided by the spouse now hospitalized will have to be purchased from outside parties, such as house-keeping, gardening and the like. Since many adults do not want to go into a nursing home or any type of assisted-living facility, funds might have to be expended to modify the residence itself to accommodate the medical needs, such as increased doorways, elder friendly bathrooms, ramps, etc. The cost of these improvements will have to come out of the portfolio as well. As a result, the diminished portfolio now has to be used to generate an annual income for which it is not designed.
In many cases, clients will respond to the eldercare comment by replying “I'll simply go on Medicaid.” In many cases these clients are unaware of the heavy financial burden Medicaid places on families and the impoverishment that they will have to undergo once again impacting their ability to meet the financial obligations that are so important to them.
Once a client completely understands the impact the catastrophic illness can have on their financial stability, it becomes easy to discuss a variety of financial planning topics:
A client’s objection to entering a nursing home cannot be used as a barrier to discuss many and serious eldercare topics with them.
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Michael Schulman , CPA, PFS is a CPA financial planner working with older adults and their families. He is a member of the AICPA's Elder Planning Task Force and speaks and writes on issues facing our older clients.
Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. (NFPSI) is not affiliated with Schulman CPA, PFS P.C. NFPSI does not offer tax or legal advice and is not a Certified Public Accounting firm.
* The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. PFP Section members, including PFS credential holders will benefit from additional resources on aging parents and other elder planning related topics in Forefield Advisor on the AICPA’s PFP website at aicpa.org/pfp. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder.