“Ask a doctor.” It’s a disclaimer in just about any medical discussion or commercial for prescription medicine: If you’re confronted with a health crisis, you probably know you should consult a medical professional. But what about a financial professional?
Medical expenses have become a significant consideration in retirement planning. But it’s not enough to factor the cost of medical care into your investment strategy, you also should be prepared to make financial decisions as events unfold.
If you’re dealing with the declining health of a friend or loved one, for example, it may seem uncaring or inappropriate to make sure they have alerted their financial adviser. But it may be one of the most helpful things you can do.
As a person approaches the end of their life, the emotion of the situation can overwhelm rational thought. Even close family members may be in denial or not thinking clearly. Financial considerations may seem secondary. Heirs may not have a full understanding of the financial issues and the stakes involved.
Illness can also impair a person’s mental faculties, affecting their cognitive ability and making it difficult to carry out their financial affairs.
It’s important to prepare for that moment in advance. Designate someone to take over your finances if you should become impaired, and give them instructions for notifying your financial adviser of your condition.
Making good business decisions at a time of family grief may seem cold, calculating and self-serving, but failing to act in a timely manner can have significant consequences for the estate.
The biggest mistake we see in these situations is a person who dies without selling all their investments in which they’re carrying a loss. Estate tax rules forgive taxes on gains for profitable investments, but it’s a knife that cuts both ways – it also forgives losses. Failing to sell money-losing investments before a person dies can allow valuable deduction to escape.
Realized losses can be carried forward for up to 15 tax years. In other words, allowing this benefit to go uncaptured could mean letting a big benefit for the estate slip away.
As the end of life nears, investors – or the family member designed to handle their financial affairs – should request that their financial advisor sell or swap securities that are showing a loss. Selling those investments properly could provide tax benefits for heirs years into the future.
This is just one example. If a financial adviser knows an investor is nearing the end of life, they can provide an object assessment of the portfolio and make sure the heirs are fully informed of important financial decisions that may otherwise get overlooked in the emotions of the moment.