Tom West is a senior partner at Signature Estate & Investment Advisors, working with clients and advisers to determine the best financial solution for clients and their families. Many are overwhelmed by the complexities of navigating aging, health insurance, long-term care insurance, Social Security and Medicare/Medicaid regulations. West came up with the idea for the Lifecare Affordability Plan to help clients bridge the gap between health care and finance.
Tell me about the unique challenges facing wealthy families when a family leader is incapacitated for health reasons.
The three general challenges that wealthy families face when a family leader is incapacitated for health reasons are: changing priorities, successor decision-making and shifting of roles and the complexity associated with wealth.
If wealthy families have done a good job aligning their financial and estate plans with their family priorities, issues around incapacity should have at least been considered. With that said, it's very difficult for people to envision themselves as less well in the future. A new diagnosis, particularly cognitive impairment, can come as an uncomfortable shock. Priorities such as maximizing the legacy, tax efficiency, and supporting a comfortable lifestyle for multiple generations can be hijacked and sometimes overrun by new priorities like staying in their own home, no matter the consequences, for financing health care costs at the expense of previously articulated goals.
Successor decision-makers in these circumstances are often surprised by the kinds of challenges they encounter. Of course, the family would hope to have the appropriate authorizations for financial and health care decisions already built out with signed legal documents. Still, the powers of attorney and contingent trustee elections aren't sufficient in many cases. Successor decision-makers must have the time, temperament, information and bandwidth to effectively play new roles when it comes to money in health care.
Sometimes, the sheer complexity of managing a wealthy estate can be overwhelming, particularly if a family leader didn't do a good job of sharing information and explaining the logic behind different financial circumstances. Many times, the status quo financial circumstances for a wealthy family are caused more by inertia than by deliberate decision-making, and there can be additional stress on the part of the successor decision-maker trying to understand why things are the way they are.
How should families go about making decisions, both health care and financial, when faced with this situation?
The first thing families must do is to rapidly identify if they have the legal authority to make necessary decisions. There's nothing like an incapacity to test whether financial institutions will seamlessly honor the family's wishes. Best practices, of course, are always to engage financial institutions in securing successor decision-maker elections before an event.
The next thing that families need to do after securing the authority to make health care and financial decisions is to identify which decisions are urgent and necessary versus potentially being able to put them off for the time being.
Another helpful framework for families thrust into this situation is to try to reduce as much ambiguity as possible in the choices that need to be made. For example, suppose the financial matriarch of the family develops cognitive impairment and needs to be taken care of at home. In that case, there's probably a finite number of care providers that can serve effectively. Good financial advisers can make real-time projections about how to finance such health care costs, reducing ambiguity and enabling more seamless decision-making.
Finally, families facing new roles can readdress the division of labor among family members and professionals, recognizing that a sympathetic but sometimes overstressful tendency is for a small number of family members to take on oversized responsibilities without asking for or accepting help.
What is the best way to bring up the often-delicate issue of succession?
I've always found that two open-ended questions are the best way to bring up succession. First, I'd like to ask, “If something was going to go wrong with your succession plan, what would it probably be?” This line of question often uncovers sometimes unspoken sensitivities that can give families and their advisers a quick identification of weak links in the family's decision-making process.
The next question is, “Who do you think is responsible for successor decision-making with health care and with finances?” By framing a question this way and not, “Who is your power of attorney?” I can get to the strengths and weaknesses of potential successors and match them up as appropriate with elections that have been made in legal documents. Asking who is in charge versus who should be in charge is also sometimes a helpful line of inquiry.
How do you recommend protecting the aging members of the family from financial abuse?
It's very important to normalize the sometimes universal experience that we all face with cybercrime and fraud. Many times, aging family members can be reticent to talk about or admit any vulnerability to fraud or financial abuse because such an admission might lead to doubts about capacity and the older adult’s ability to self-manage their own lives. By using stories — often too real — about how other folks have been victimized, we can engage older clients and older investors to be more vigilant in their day-to-day lives without feeling talked down to, patronized or shamed.