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Here’s a real dilemma for a wealthy 87 year old woman whose situation is secure but it is causing family conflict. She needs full-time care, long term.
Her financial advisor, together with the bank trustee managing her assets, used calculation tools to figure out how to make her assets last for her lifetime. Somehow they failed to anticipate the actual cost of caring for an elder with physical conditions and illnesses that require 24/7 care. This is a woman with advanced cardiac disease who had open-heart surgery. Her daughter, who is a professional, left her self-employment to care for her mother full time. The caregiving daughter wants some compensation from mom’s millions. She indeed deserves it.
The life expectancy the trustee and advisor chose as a basis for determining how long her assets would need to last was 100 years of age. Given her medical issues, no doctor treating her would agree with that estimate.
While cash is being drawn down monthly for her essential expenses for care at her daughter’s home, no one calculated the cost to her daughter who is losing a six-figure income by providing the needed care. Being with her daughter is the mother’s preference and her daughter is taking excellent care of her.
The brother, who is eager to get his “share” of an inheritance, is hovering around the trustee demanding to know how much is being spent to care for mom and why the caregiving sister should get compensation to make up for her income loss, even partially. He resents his sister for asking for compensation for caregiving.
What could you, as an advisor, do to prevent or mitigate family conflict like this when planning for an aging client’s future?
Here are some tips:
1) When using tools to calculate life expectancy, take into consideration your client’s medical condition. Get real data from your client or from involved family. Update your information and calculations as age takes its toll. Health generally declines in old age.
2) Take into consideration that about 70% of people today will need long-term care at some point. In the client’s case described above, the minimum cost of care for her is $12,000 a month. That does not include bookkeeping, a driver, or medication management. That figure covers a full-time, 24/7 non-medical home care worker only.
3) Assume that if your client has adult children willing to provide care, a wealthy client can and should compensate the caregiving adult child. What is “fair” should be based on market rates for service provided and the cost of what the adult child has to give up, such as quitting a job.
Calculation models may be inadequate to build in these details. The smart advisor will use good sense and knowledge of client’s needs and preferences to adjust planned drawdowns to meet those needs.