Allison Carter Fanney, PCM - AICPA Lead Manager of Corporate & Executive Communications
No one knows when a health crisis will strike. We can take steps to mitigate our risks—eat healthy food, exercise more often, quit smoking—but that doesn’t mean we can plan whether we’ll get sick.
BUT WE CAN PLAN FINANCIALLY
Jim Sullivan, CPA, PFS, specializes in working with clients suffering from chronic illnesses. He has seen firsthand the devastating effects of a sudden, serious health crisis and is an expert at care plan funding and recovery. His work, as he described it, allows his clients to focus on addressing the illness without the worry of how to pay for its costs.
Sullivan said that while he prefers to do proactive planning with clients before they get sick, he often starts working with a client just days after they’ve received terrible health news. Regardless of when he first engages with an ill client, his approach is the same: He creates a financial plan from scratch.
“Whatever financial plan they had before the illness becomes irrelevant,” Sullivan said. “It’s broken. They are going to have to sit down and look at things differently.”
Understanding how to diminish the financial impact of a serious illness can remove a huge worry from your client’s already overwhelming situation. Here’s how Sullivan said he approaches a seriously ill client’s finances:
"A serious illness is difficult to manage for
anyone. It's fraught with uncertainty and can
leave your client feeling helpless and scared. But as a CPA, you're positioned to ensure they aren't fighting alone."
DIAGNOSE THE FINANCIAL CONDITION
Uncalculated medical expenses, possible income and benefits losses, and an uncertain prognosis mean the only real certainty is what the numbers say. Sullivan said CPAs should delve deeply into these numbers and uncover every possible funding option or barrier as they create a new financial plan for the client.
“We may come up with great solutions for funding, but sometimes we’re picking the best alternative from a lot of bad alternatives,” Sullivan said. “I make a list of funding options and determine what I can access first.”
Some of the areas to consider when creating this new financial plan include:
- Cash savings, assets and property
- Health insurance coverage and accelerated death benefits from life insurance policies
- Retirement accounts (Sullivan suggests not using these first for funding options as they could result in a significant tax liability.)
- Debt (mortgage, credit cards, loans, medical)
- Household expenses
- Reverse mortgage options
- Income and employment benefits (long-term disability plans for employees)
- Alternative funding options (crowdsourced funding, gifts, donations)
- Tax implications of financial moves (medical deduction, early distribution penalties and tax)
PROGNOSIS AND EXPECTED COST OF CARE
Once these details are in order, Sullivan sets out to create a care plan budget that focuses on the short-term needs of the client. Due to the uncertainty and confusion in the immediate aftermath of a serious diagnosis, planning beyond a year or two is often impossible.
Taking a holistic approach to planning during a client’s illness helps make sure their finances stay as healthy as possible. But this isn’t where the work ends.
ADVOCATE FOR YOUR ILL—AND WELL—CLIENTS
While Sullivan focuses on getting his client’s finances in order, he’s also working to secure their future.
“A sick person needs to have an advocate,” he said. “This is for more than financial planning. They need a medical advocate who can ensure care for maximum recovery.”
Sullivan helps families identify who should be named as the patient’s medical advocate—someone who can be on the side of the patient and ask questions, take notes, work with health care professionals and contact the insurance company.
He then takes things a step further. He reminds clients their plans should include more than just the patient, Sullivan said.
“CPAs cannot focus only on the sick client but must be an advocate for the affected family members as well,” Sullivan said. “We may lose sight of the caregiver when focusing on the patient’s needs.”
For example, if the patient is the sole income provider for the household but is unable to return to work, the family will need to adjust their financial plan permanently. A CPA should evaluate insurance coverage, retirement planning, investments, debt and even real estate and property for both short- and long-term planning.
“CPAs must also plan for the healthy spouse and their contingencies,” Sullivan said. “Sometimes what I see people forget is the caregiver may get ill themselves or pass away. If this caregiver should die, who would replace them?” CPAs should make sure an unpaid caregiver, such as a spouse or other family member, has adequate life insurance to cover to cost of professional care.
A serious illness is difficult to manage for anyone. It’s fraught with uncertainty and can leave your client feeling helpless and scared. But as a CPA, you’re positioned to ensure they aren’t fighting alone.
And remember: You don’t have to be an expert in every area of your clients’ financial lives, but being their primary point of contact makes you the best person to turn to for help. Make sure they know to start with you. Visit the AICPA’s Planning and Tax Advisory Services hub
to find out how you can be ready for whatever comes your clients’ way.
Originally posted on blog.aicpa.org.