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10 Money Steps When Facing
A Serious Health Crisis
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A June 2009 article in the American Journal of Medicine reported that medical bills are behind more than 60 percent of U.S. personal bankruptcies, adding that more than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts.
The article, based on research from Harvard Law School, Harvard Medical School and Ohio University, underscores how a single health crisis can financially destroy both individuals and families. It is information that underscores the need for adequate planning ahead of any health crisis, particularly when known risk factors exist in a family. An insurance expert can help individuals determine if their insurance and savings options are adequate to handle the possibility of any future health crisis.
If you have time to prepare, most financial planners will advise:
• Creation of an adequate emergency fund to cover several months (usually a minimum of three months and, even better, up to a year) of family expenses if a patient can’t work during their treatment;
• Purchase of separate disability insurance to pay everyday expenses since company-bought disability coverage will likely be limited - the benefits on any individual policy need to be coordinated with the group policy;
• Creation of health care advance directives, health care powers of attorney and financial powers of attorney, health care proxies (each state has a “preferred” document that is accepted; clients need to execute the form for their state of residence) and DNR forms among the examples.
• Prepare lists of critical phone numbers, major assets and where information on each can be found on investment accounts and other key information in case the person is incapacitated;
• Communicate funeral plans to family members in writing so that wishes can be implemented in the event of death. Even better, complete a personal death awareness document that covers both the practical aspects of death and the interior emotional aspects of death.
But if you’re suddenly faced with a frightening, expensive and potentially life-threatening diagnosis without such preparation, here are some basic steps to take:
Start by realizing it’s not all about the money: If you or someone you love is sick, obtain the best care possible, not what your bank account and health insurance can buy.
Grill the patient’s insurance agent or HR person: If you or family members have bought health insurance through an agent or your employer, insist that they explain exactly what the plan covers and where your deductibles do and don’t apply. Generally, a serious illness will quickly use up the deductible (this is where your emergency fund is important). Pay attention to how much the insurance will pay and how much you’ll pay out of pocket once the deductible is exhausted.
Check on experimental treatment and see how it will affect coverage: If the diagnosis is cancer or some other potentially life-threatening illness, in addition to tried and true treatments, research medical centers offering clinical trials. And, keep in mind that some insurance plans might look at certain treatments that could potentially lead to other health issues. Err toward caution in these matters, but if the insurer approves, see if such experimental treatment can get you a break on costs.
Get those directives in order: A health care advance directive is a formal, preferably notarized instruction sheet for doctors to follow in case you or family members are incapacitated. The most commonly known health care directive is a do-not-resuscitate (DNR) order. A health care power of attorney designates a particular individual — a spouse, a friend, an adult child — to carry out your medical wishes if you are incapacitated. Meanwhile, financial powers of attorney designate an individual to handle financial affairs if the sick or deceased are single or did not designate joint tenants for certain assets. Again, each state follows a particular set of documents.
If there isn’t a will or a complete estate plan, make one: A will doesn’t have to be enormously detailed to relieve problems for survivors, but it can create enormous problems if it doesn’t exist. If there is no executed will, the estate is intestate, which means that property is distributed by state laws. Yet it makes even more sense to review all of a patient’s assets to determine if more detailed directives are necessary and most important, to make sure beneficiaries on insurance, retirement accounts and other investments are up to date. Please contact our office if you need a referral to an estate planning attorney.
Ask for generics and samples: Many physicians are willing to recommend a generic substitute or at least supply you with a few samples of the drug they’re already prescribing. While doctors can’t get away with passing sample drugs to all their patients, always ask. As long as they are prescribing the medication, samples with the proper dosage can provide cost savings to patients.
Begin negotiations before there’s a financial problem: The best time to speak with hospital bean counters isn’t when you’re behind on your payments. Once a diagnosis is made, either you or someone you designate as your agent needs to contact the hospital business office to check on payment schedules and possible discount plans if you are uninsured or fear your insurance may not cover a significant portion of costs. Any creditor appreciates a customer who’s willing to come to the table first.
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Get 2010 Off To A Great
Financial Start
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Plenty of people make resolutions to lose weight, get a new job or make other things happen in their personal life, but relatively few make solid resolutions about money. Make 2010 the year you’ll live a better life financially. Here are a few resolutions to think about:
Write down the things you really want in life: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them a formality and a starting point for the planning you must do.
Evaluate your risk tolerance: One of the most beneficial things financial planners and advisors can do for you is to help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the recent recession and market turbulence, many individuals would benefit from an analysis of how much risk they want (or need) to take based on what they want to achieve with their money.
Track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order whether you do it on paper or on your computer. Mint.com or QuickenOnline.com are free online programs that help you do this.
Get tax and financial planning advice: Maybe you’ve winged it with your taxes and considered your company retirement plan or 401(k) the ticket to your financial future. Chances are your planning is inadequate. Consider meeting with a good tax advisor or CPA to make sure you are doing everything you can to minimize taxes and schedule some time to meet with your Capital Advantage Inc. advisor to review your portfolio and do some financial planning.
Cut your debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum -- on time, every month. And if you can pay extra toward mortgage, auto, student or other borrowings, you should do so.
Start saving -- or save more: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum amount in your retirement plans and savings.
Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it. Keep in mind self improvement is always a good investment.
Redefine the way you shop: If you’re an impulse shopper, break the habit in 2010. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.
Change the way you commute: If driving is the single best option to getting to work or other destinations, it’s tough to make that switch. But if you have the option to leave the car in the garage at least one day a week and walk, bike, carpool or take public transportation instead, try it. You’ll save money on gas, maintenance, insurance and parking costs, you’ll benefit the environment and in the case of walking or biking, the exercise may do you good.
Cut unnecessary expenses: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.
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Keep An Eye On Your State's Estate And Inheritance Tax PolicyStatY
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With the 24/7 rush to get health care reform legislation through the U.S. Senate in the waning days of 2009, Congress let the federal estate tax die for 2010 as planned by the Bush Administration back in 2001. That’s not expected to stay the case for long – many experts anticipate that Congress will re-apply exemption levels with retroactive legislation sometime this year to help tame rising deficits.
But, individuals and families should keep their eye on another big estate tax issue – a potentially huge hit from their home state.
A recent report in The Wall Street Journal says taxpayers with significant assets need to keep a close watch on what’s going on with their home state’s exemption levels because most states with estate or inheritance taxes haven't matched the federal exemption levels of recent years. For example, in 2009, all individuals with less than $3.5 million in assets and married couples with less than $7 million were exempt from federal estate taxes – this is likely to be the level that Congress may act to reinstate this year.
Working with your estate attorney, tax advisor and your Capital Advantage, Inc. financial advisor can help you determine your estate tax situation. Estate planning is an even more important issue now that many states have significant budget woes and may be looking for more revenue to fix them. For some individuals and families, there may be no adjustments in estate tax strategy, but others in extreme circumstances might be advised to move out of state to avoid a potentially big impact.
Individuals and couples should also realize that Congress is considering eliminating the federal deduction for amounts paid for state estate taxes. It’s expected to affect individuals with more than $3.5 million in assets which is potentially another big hit.
According to CCH Wolters Kluwer, there are seventeen states and the District of Columbia that currently impose estate taxes. Eight states have inheritance taxes, which are levied on heirs, not estates. Maryland and New Jersey have both.
Every state puts its own wrinkle on estate tax issues, and that’s why it’s particularly important for retirees not only to check how those laws might affect their assets if they settle in a particular state for good.
One possible solution is a bypass trust – a trust that essentially allows the assets of a deceased spouse to access a trust that can be drawn on by the survivor. When the spouse dies, the assets in the trust can go tax-free to designated heirs, preserving the benefit of both individual exemptions. In other words, if a married couple lives in a state with a $1.5 million individual exemption and establishes such a trust, it would allow them to pass as much as $3 million to their heirs. Additionally, purchasing life insurance is an effective estate planning technique and is regarded by some experts as the safest way to avoid estate taxes, particularly if the insurance is purchased within an irrevocable life insurance trust.
As the federal government and states start flipping their taxpayers’ couch cushions for more revenue, experts say it’s also important for individuals and couples to be particularly careful about domicile issues – the actual amount of time individuals live (and therefore can be taxed) in a particular state. In an audit, revenue officials might check the minute details on a taxpayer’s lifestyle to determine where they owe tax – car registrations, club and church memberships, health care providers, burial sites and voting records. In other words, the tax planning behaviors of the mega-rich are increasingly becoming relevant for the borderline rich.
One more thing to watch – Congress may eventually act to diminish or eliminate other methods long used by individuals and couples to cut estate taxes. Reports have surfaced that family limited partnerships, grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs) might go the way of the dodo since they provide the means to freeze or cut the value of assets being transferred out of the owner’s home state.
Taxpayers concerned about their estate tax situation might also bring another key group of people into the discussion – their heirs.
When talking about extensive assets, it’s good to discuss the tax situations of the giving and the receiving parties to make sure the chosen solutions are best for both sides. It is best to hold a financial planning family meeting to discuss charitable giving intentions, and the protection of the total family’s wealth. Clear communication on planning strategies will ensure maximum family wealth preservation.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations.
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Contact Us
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John Hayman, CFP
Founder & President
Email John |
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Donna Zinman
Senior Financial Advisor
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Gary Clarke
Senior Financial Advisor
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Rick McNamara, CFMC
Director of Investments
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Dawnalizabeth Henke
Chief Compliance Officer
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Catherine Norris
Manager of Client Service
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Aimee Schwartze
Director of Client Service
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Amy Montano
Office Manager
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