Case Study
Formulating a Plan with Care.
Our Professional Investment Management team and Trust Administration Group worked together closely to ensure that this family’s wishes were fulfilled.
Meet the Smiths.
John and Mary Smith were in their late 60s when they consulted their local attorney about an estate plan. The Smiths had no children, but did have brothers, sisters and nieces on both sides. Their estate included a house, some mutual funds, bank accounts, CDs and annuities. They were also receiving income from Social Security and a retirement plan.
At the time, Mary showed early signs of Alzheimer’s but was still capable of making decisions. The attorney created a Revocable Living Trust to provide for Mary in the event of John’s death. The couple transferred their assets into the Living Trust and together served as trustee until John’s death in 2000.
Broadway Bank was named successor trustee and was notified of his death. We consulted with the family and transferred all assets to Broadway to administer the trust.
Assessing the situation.
We reviewed Mary’s portfolio and looked closely at her life expectancy and future expenses. The assets in Mary’s estate totaled $1.2 million. She wanted to remain in her own home for the rest of her life. But she did have Alzheimer’s and the rate of progression was unknown. So while Mrs. Smith had no debt, her income stream was not enough to provide for long-term, in-home care. This situation divided her family over how to plan for her future.
But we were bound to follow Mary’s wishes, knowing that her assets might be depleted before she died. So we needed to find a method of managing her portfolio and expenses so that she could remain at home.
The plan.
Based on Mary’s age and her family’s history of longevity, we took a calculated risk to change the asset allocation from conservative, income-generating assets to growth assets. We were planning that future market growth would cover the additional expenses needed to keep her at home with the care she would require. Based on her life expectancy, Mary had sufficient years of life remaining to weather market volatility and sufficient assets to maintain her during down cycles.
We spoke with each family member both in person and over the telephone to explain our plan. We wanted to make certain they understood the advantages and the risks of our proposed plan.
Implementing the strategy.
Once the plan was approved, we analyzed the entire portfolio. As CDs matured, assets in line with the new investment objective were purchased. The new objective was more structured to growth than income, so more equities were purchased.
Mary remained at home with daily care for a year and then 24-hour care for three years. As expenses were paid and available money market funds were depleted, we began selling fixed income assets - and then the equities to cover the shortfall.
When Mary was finally transferred to an Alzheimer’s care facility, her expenses were less than her income, so her account was rebalanced to add more fixed income. The plan was formally reviewed annually, and reevaluated at each fixed income maturity or sale of assets for expenses.
The final analysis.
Mary came to us in 2000 with $1.2 million dollars. When she died in 2005, her assets totaled $1.1 million after distributing over $650,000 for her care. Her portfolio had maintained its asset value, which allowed Mary to remain at home until she no longer had the cognitive ability to know where she was. After her death, all of her assets were transferred into the trust. The trust assets were then liquidated and the proceeds were distributed to the designated recipients.
This type of plan requires more coordination between our Professional Investment Management team and Trust Administration Group. It requires more in-depth reviews on progress and results; it must have a predetermined exit strategy; the client and family need to be made aware of the risks involved; and the goals to be achieved must be worth the risk assumed. In this case, they were.
INVESTMENT PRODUCTS:
NOT FDIC INSURED • NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
NOT BANK GUARANTEED • MAY LOSE VALUE
Note: As with all Case Studies, client names and details have been changed.
