Protecting your wealth from Degenerative Illness

By Chris Risenmay, CFP®


There’s a common phrase we’ve all heard: hope for the best, plan for the worst. When it comes to our health, finances, and insurance, this saying especially rings true. We don’t like to think something bad will happen, but there’s always the chance that it will.

We recently met with a client who was diagnosed with Parkinson’s. Like other degenerative diseases, millions of adults (typically over the age of 60) suffer from Parkinson’s and, just in recent years, researchers have recognized that Parkinson’s is much more than a motor disorder. Studies show that those with Parkinson’s may experience memory problems and impaired decision-making, both of which can result in big financial problems.

Managing a degenerative disease is upsetting enough without also having to worry about the financial implications. When we met with this individual, we reviewed her financial house and developed asset protection strategies to help her safeguard her wealth so she would feel confident with her retirement income and could leave the legacy she intended for her family.

Working with this individual reminded us just how important it is for everyone to understand the necessity of planning ahead and making sure your finances are protected and in good hands. If you or your spouse has a degenerative illness, consider taking these steps to ensure your financial house is in order.

Don’t Make Big Decisions Under Stress

It’s important to take time before making any big decisions. Avoid making hasty irreversible financial choices such as deciding to sell a house or move, or even making large purchases until you’ve had a chance to think things through. Research shows that people are more likely to ignore long-term consequences when making decisions under stress.

This is why it’s important to take steps now, even if the financial decision-maker in the family is still healthy. Otherwise, if later you’re feeling stressed, your decision-making may be impaired. If you’re already feeling stressed, make sure you are considering the long term consequences.

Create a Short and Long-Term Plan for Your Family

A loved one suffering from a degenerative illness may require long-term care or extended medical assistance at some point, which can have a significant impact on your family, both in the immediate and in the long run. Beyond determining how you will cover long-term care, you’ll need to create a plan for your family.

In the short-term (between now and one year in the future), how will this affect your family’s daily life? Will one of your family members be caring for your loved one? You may need to change vacation plans or adjust who picks up the kids or grandkids from school.

In the long-term, what will your spouse need? Do doctors anticipate an increased or reduced level of care years down the road? Does it make sense to move closer to a better or less expensive nursing home? These are just a few of the details you’ll need to address so you know what to expect.

Consider Taxes, Fees, and Penalties Before Liquidating Your Assets

Often, medical crises require money to address. However, it is critical to avoid liquidating assets without the advice of a financial advisor. People who feel stressed or who face stressful situations, like a loved one’s illness, often sell investments without thinking in order to start retirement early or pay for medical bills. However, this can lead to big tax bills, fees, and penalties at the end of the year. It’s critical to understand the tax treatment of any withdrawal you make and the associated costs.

For example, if you were to withdraw funds from a tax-qualified retirement account before you are 59½, you typically owe ordinary income tax on the distribution and a 10% penalty. Additionally, many investments, life insurance policies, and annuities have substantial early withdrawal fees to consider.

When you take into account fees or penalties, it may make more financial sense to liquidate a different asset. Work with your advisor and CPA to coordinate a strategy that will reduce the taxes, fees, and penalties you will pay.

Get Your Attorney, CPA, and Advisor On the Same Page

When evaluating your financial house, bills, retirement funds, and estate plan, it’s essential that your estate planning attorney, CPA, and financial advisor are on the same page and working together.

If your CPA isn’t aware of certain financial strategies you’re implementing, or your advisor doesn’t know about how you’re setting up your will or trust, it may cause problems — or worse, tax penalties or legacy plan confusion — down the line. Hopefully, you’re working with someone who you feel comfortable with calling and sharing these personal details. If not, search for a different advisor with whom you can build a close bond.

Besides understanding what each professional is doing, it’s ideal if your professionals collaborate. At The Cypress Group, we want to lead the way in getting your CPAs, attorneys, and any other professionals with whom you work all communicating. All following the plan you have outlined in advance. We want our clients’ strategies to be streamlined and organized, and we hope to eliminate as much stress or confusion as possible.

Are You on Track?

If you or a loved one is experiencing a health setback or financial transition, it is important to consider your options. Your retirement years are a critical period for protecting, growing, and transferring your wealth and legacy comfortably to those you love and to causes you support. Unfortunately not taking action can potentially be a costly mistake – the last thing you want is for an illness to put the plan you have in mind at risk.

At The Cypress Group, we specialize in helping pre-retirees and retirees during this life phase, which usually involves many milestones. If you are concerned about how health issues may affect your finances or just want to review your current financial house and strategies, we’d be happy to provide a no-cost consultation. To learn more about how we may be able to help visit us in the Parkinson’s Resource Organization’s WELLNESS VILLAGE and then contact us directly.

About The Cypress Group

The Cypress Group is a division of Integrated Wealth Management, an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. With an 11-person team of professionals with diverse backgrounds and extensive experience and qualifications, The Cypress Group is uniquely qualified to serve a broad range of client needs. Their experience and expertise act as a foundation for their client service process, The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert, Newport Beach, and Anchorage, the firm serves clients across the country.

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