Facing a Terminal Illness in the Family? This Financial Checklist Can Help.

It was 2015. My dad was approaching his 91^st birthday, and while he hadn’t been diagnosed with a terminal illness, his health was poor and getting worse.

He and my mom had been together for nearly 73 years, and he’d always been the main breadwinner and the one who managed their finances. Even in retirement, his pensions and Social Security payments were the bulk of their income.

I tried talking with my mom, suggesting it would be a good idea to have an open conversation about how their finances would change when he passed away.

She refused, “He won’t die before me!” she declared, despite his being three years older, a man, and in poorer health.

Inescapably, he passed away before her in 2016. Beyond his DNR (Do Not Resuscitate) order on file (which was crucial to get the hospital to let him die in peace once he lost any awareness), Dad also had a simple will in place, leaving everything to Mom.

His recordkeeping allowed us to find most, but not all, of their assets.

Aware that mom wouldn’t be able to start managing her finances for the first time at age 88, I offered to step in. It took a bit of convincing, but she finally consented. It allowed me to manage her investments and other accounts for two years until she passed away, the day after Dad would have turned 94. 

The most important service I provided was to ‘give her permission’ to spend as freely as her finances allowed rather than being overly frugal.

Lessons Learned When a Spouse Neared Their Death

Here are my top ‘lessons learned’ – moves that apply to a situation when one spouse is about to die, especially if he or she is the main breadwinner and the one who has always managed all financial matters.

1. Simplify your finances as much as possible – consolidate accounts and/or debts, automate monthly draws and/or payments, etc.
2. Have your important legal documents signed and up to date (e.g., will, estate plan, advance directive, living will, healthcare proxy, powers of attorney, life insurance policies, deeds, etc.) and keep them in a single folder in a safe or safety deposit box to make it easy on whoever needs to implement your wishes. You may wish to add a letter stating any personal items you wish specific people to receive. While such a letter may not be legally binding, it will help your heirs when dividing belongings that aren’t mentioned in your will.
3. Add a list of all assets (and any debts) to the folder, including where they’re held, account numbers, PINs, user IDs and passwords for online access, approximate values (balances owed and monthly payment amounts), beneficiaries, etc.
4. Add to the folder details of any pensions and how they’ll be affected by your passing (e.g., Dad’s pensions continued paying out monthly to Mom, but at 60% of what they paid while Dad was alive).
5. Finally, add to the folder a list of the professionals you work with (e.g., attorney, accountant, investment advisor, etc.) and their contact information.

Omar Morillo, Founder & Sr. Wealth Advisor at Imperio Wealth Advisors, says, “When diagnosed with a terminal illness, it’s crucial to prioritize simplifying your financial life. Consolidating accounts and setting up automatic payments for regular expenses can ease your spouse’s financial management. Update your will and estate plan to ensure all beneficiary designations are current. Establish powers of attorney for healthcare and financial decisions. Taking these steps can ensure your wishes are respected, giving you some peace of mind during this difficult time. Additionally, have an open discussion with your spouse and/or other family members about managing finances and investments. These conversations help prepare them for future responsibilities and ensure a smooth transition.”

Marianne Nolte, Founder of Imagine Financial Services, agrees, “Not only should updates to estate documents be top of mind, but generating a list of assets, where they’re located, and then sharing this information with a trusted contact. Also include a list of professionals assisting you in all matters of finance, such as accountants, estate attorneys, insurance agents, etc. Again, share this list with a trusted contact.”

Jessica Davis, Financial Planner, Tudor Financial, suggests, “A guidebook prepared for your spouse or partner can be incredibly helpful. This can include things like contact information for the professionals in your life, detailed account information for financial accounts and debts, household bills, insurance policies, and copies of important documents. We even had a client once include instructions on how to operate the alarm system, sprinkler system, and information on the lawn mower.”

Important Considerations When Facing a Terminal Illness

If you’ve been diagnosed with a terminal illness, especially if it’s likely to impair you cognitively as time passes, you may have a short time to take care of many crucial things.

Unfortunately, you’ll need to do this at a time when you’re dealing with such emotions as disbelief, grief, anger, resentment, fear, regrets, depression, loneliness, apathy etc.

That’s why it’s best to carry out as much as possible of the planning and preparation work before being diagnosed. That way, you aren’t overwhelmed, so you can set up things calmly and thoughtfully.

Immediate Cashflow

If you’re terminally ill, you’re likely to face massive medical and related expenses at a time when continuing to work is impossible, so your income may diminish significantly.

You may be able to draw on some or all of the following resources to help:

• Paid Vacation and/or Sick Leave: If your employer offers these, they can extend your salary for at least a short while.
• Worker’s Comp: In certain cases, e.g., if your illness resulted from work-related issues, you may be eligible for worker’s comp benefits.
• Short- and/or Long-Term Disability Insurance: You may have these especially if you’re still working and get them through your employer. If you paid premiums with pre-tax dollars, you’ll likely owe taxes on the benefits.
• Long-Term Care Insurance: This may start paying out if you’re unable to perform at least two of six widely accepted ‘activities of daily living’ (ADLs): bathing, dressing, toileting, transferring (getting in and out of bed or chair), eating, and continence.
• Pre-Death Life Insurance Benefits: Many life insurance policies include the possibility of a pre-death payout of a portion of the death benefit if you’re diagnosed with a terminal illness. Some policies let you borrow against the death benefit.
• Selling Life Insurance Policies: Another option, if the policy doesn’t provide any (or sufficient) pre-death benefit is to sell your policy. If you’re certified as expected to die within two years, you may be able to sell your policy/ies to a so-called ‘viatical settlement company,’ potentially avoiding income taxes on the proceeds.
• Tax-advantaged retirement accounts: If you’re over 59½ years old, you can tap your 401(k), 403(b), 457(b), IRAs, etc. without penalty. Per the so-called SECURE 2.0 act, many of these plans can be tapped without penalty before age 59½ if you’ve been diagnosed with an illness expected to take your life within seven years. All contributions made to Roth IRAs (but not earnings) can be withdrawn tax-free and with no penalty at any age if the account has been open for at least five years.
• Annuities: Some annuities can provide far higher income for the same premium if you’re terminally ill than those you’d buy if you’re in good health.
• Health Savings Accounts (HSAs): Any withdrawals from HSA accounts that cover medical expenses are tax-free.
• Social Security, Medicaid, and Medicare Benefits: If you’re at least 62 years old, you can claim Social Security retirement benefits. If your illness causes disability, you may be eligible to receive Social Security disability benefits and/or Social Security Supplemental Security Income. If your income is low enough (or non-existent) you may qualify for Medicaid benefits and/or early Medicare benefits.
• Reverse Mortgage: If bequeathing your home isn’t a high priority, such a mortgage can provide relatively high income if your life expectancy is short.
• Liquidating Securities: Since many securities are not appropriate for short-term needs, you may want or need to sell stocks and/or stock funds and place the proceeds in a highly liquid asset such as money market funds, high-interest savings accounts, etc. Keep in mind the limits of FDIC and similar coverages to avoid the risk that a possible bank failure could lead to significant losses.

Michael Rosenberg, Managing Director and Founder of Diversified Investment Strategies, LLC, suggests, “Review financial instruments and ensure they’re positioned to provide any liquidity you may need. In addition, ensure qualified account beneficiary designations are correct. If married, review investments with your spouse and, if pertinent, children. Finally, draw up a power of attorney to give to investment firms so your spouse or children can make changes or withdrawals as needed.”

Estate Planning

A properly crafted estate plan can help your loved ones (or other heirs) avoid having to wait for a probate court to determine who gets the proceeds of your estate and in what amounts. 

Chris Mankoff, Certified Financial Planner, JTL Wealth Partners, says, “The most critical step is ensuring you have an estate plan established, reviewed, and updated. Depending on the situation, this could be as simple as reviewing beneficiary designations and account titles and making updates to avoid probate. Without an estate plan, your assets are subject to probate and the probate court’s ruling and could be subject to taxation. Depending on the time frame of the diagnosis, you may be able to implement certain tax planning strategies to reduce or minimize transfer taxes that can only be carried out while you’re alive. Another common step is ensuring your spouse is aware of debts and establishing a plan on how to manage the responsibility going forward.”

This is especially important if you’re separated from your legal spouse and/or living with a partner without marriage. In the former case, your possibly estranged spouse may receive more than you wish, while the unmarried partner may receive nothing.

However, life insurance policies and many account types allow you to specify one or more beneficiaries who will receive the relevant benefits and/or assets despite anything stated in your will. Further, if you hold your assets as a joint tenant with rights of survivorship, your co-owner will get everything even if your will stipulates something different.

Note that underage (minor) beneficiaries cannot receive the benefits directly. To avoid the cost and hassle of having a court decide on a custodian or guardian, consider setting up a trust in your will to the benefit of the minor heir and naming the trustee of the trust as beneficiary.

That’s why reviewing your beneficiary selections and how assets are titled is crucial to ensure things go where you want and expect them to go.

Preparing for Taxes

Make sure to keep receipts for any unreimbursed medical costs and medically necessary travel so these can be deducted (if itemizing, for expenses above 7.5% of your Adjusted Gross Income, or AGI).

If your illness leads to disability that requires modifications to your home, such expenses are tax deductible, so keep receipts and documentation showing they are medically necessary.

Adult children who care for you or pay for your care may be able to claim you as a dependent in their tax returns if you don’t claim yourself.

Especially if you stop working early in the year, your income tax bracket will be very low, consider increasing your income by drawing from non-Roth retirement accounts, since your heirs will likely be in a higher tax bracket so inheriting post-tax money would reduce their taxes relative to inheriting a traditional IRA.

Preparing Financially for a Terminal Illness

Being diagnosed with a terminal illness is a huge shock and can cause many difficult emotions. From a financial perspective, such a diagnosis will likely lead to high medical and care expenses while your income drops or stops. It also means your spouse or partner, as was the case with my mom, may have to start managing finances they never had to deal with before.

As Angel G. Escobedo, Partner & Senior Wealth Advisor, Capasso Planning Partners, says, “Facing a terminal illness demands a delicate balance of emotional resilience and practical planning. First, I guide clients to approach their changed circumstances with a renewed focus on what truly matters to them and their loved ones. This often involves deep introspection and discussions about legacy, values, and how they want to spend their remaining time. 

“In terms of urgent financial moves, updating legal documents takes precedence. This includes revising wills, establishing or updating estate plans to reflect current wishes, and setting up medical directives like DNR orders. These legal measures ensure your wishes are clear and provide much-needed guidance for the powers of attorney. I often tell clients that the kindest thing they can do for the family members tasked with power of attorney is to leave clear instructions, so they don’t have to make those difficult choices themselves. 

“Open and transparent communication is critical to managing finances. I encourage clients to talk candidly with spouses and trusted family members about financial matters. This includes discussing how to manage investments, ongoing expenses, and any potential changes in income or benefits. Prioritizing these discussions allows for a smoother transition and reduces uncertainty during a challenging time. 

“Furthermore, seeking support from professionals specializing in end-of-life planning is invaluable. These experts can offer guidance on navigating complex financial decisions, accessing resources like hospice care or palliative services, and ensuring all necessary arrangements are in place.”

The above offers tips on how to prepare ahead of time and what financial resources you may be able to tap to help cover costs.

Have a Question to Ask a Financial Advisor?

When you’re uncertain about money matters, submit your question to Wealthtender, and it may be answered by a financial advisor in an upcoming article or in the Wealthtender Expert Answers Forum. 

Need personalized help? Visit wealthtender.com to find the right financial advisor for your unique needs.

This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.