Planning During Terminal Illness

Diagnosis of a terminal illness is never an easy situation. There are physical implications, emotional implications of the affected spouse and family, and the financial burdens that can tag along. Financial planning during these types of circumstances falls into two different categories: during the illness when cash flow is maximized to cover the medical care and expenses that arise, and estate planning when death is closer or imminent.

If a terminally ill person is working has a large effect on their cash flow and their disability insurance through their employer. If the person has retired, depending on their age they may be able to tap into their IRAs, 401(k)s, Social Security, and other retirement accounts usually may be tapped without incurring the 10% early withdrawal penalty. Some life insurance policies have riders that stipulate pay out before death if the holder is expected to pass away within 24 months, as certified by a physician.  Sales of a life insurance policy could also be used to increase cash flow, but these transactions are taxable.

See James R. Grimaldi, James A.J. Revels, and Sidney Kess, Planning During Terminal Illness, CPA Journal, May 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.