Navigating Finances After a Terminal Illness Diagnosis

I’ll never forget the phone call I received in February 2021, while eating dinner with my husband and daughter on what seemed like a normal night. I could hear the tremble in my mom’s voice when she said, “Your dad has pancreatic cancer.” Just months earlier, he’d received a clean bill of health. It was devastating for our family.

While my parents focused on treatment and caregiving, I stepped in to help organize their finances. Addressing financial matters promptly relieves stress, protects assets, and allows focus on quality time and care.

Get a Clear Picture of Your Finances

Begin by compiling a complete financial inventory. List all assets: bank and investment accounts, retirement plans such as 401(k)s and IRAs, real estate, vehicles, and personal property of value. Document debts, including mortgages, loans, credit cards, and emerging medical bills. Review income sources - salary, pensions, Social Security - and ongoing expenses to assess cash flow.

If still employed, discuss options with HR, such as short-term disability benefits or Family and Medical Leave Act (FMLA) provisions. Develop a revised budget that anticipates increased medical costs and possible income reduction. For those with a health savings account (HSA), consider using those accounts to pay for qualified medical expenses with tax-free funds.

Place all essential documents in a physical or digital file folder. Examples include account statements, titles, passwords, and existing estate plans. Include the name and contact information of any financial advisors, including investment advisors, tax preparers, estate attorneys, etc. Share access details with your durable power of attorney and/or trustee to ensure a smooth transition.

Check and Maximize Insurance Coverage

Review life insurance policies to confirm death benefit and beneficiary designations. If cash flow is tight, explore accelerated death benefits (also called living benefits), as many policies let you access a portion of the death benefit tax-free if your life expectancy is 24 months or less - often 50 to100%, depending on the insurer.

Evaluate health insurance for treatment, medications, and hospice coverage. If you need to leave your job, COBRA continuation may be available, but the premiums will be higher. For those under 65, a terminal diagnosis could allow qualification for Social Security Disability Insurance (SSDI), potentially accelerating Medicare eligibility.

Veterans should explore VA benefits, which can include comprehensive palliative and hospice support. Review your long-term care insurance policy in the event you qualify for benefits.

Update or Create Estate Planning Documents

Proper estate planning prevents unnecessary complications. If no will exists, establish one to specify asset distribution. Absent a will, state intestacy laws govern, which may not align with your distribution desires. Revocable living trusts can bypass probate, provide privacy, and facilitate management during incapacity. Other essential documents include:

• Durable power of attorney for financial matters
• Healthcare power of attorney
• An advance directive or living will to outline end-of-life medical preferences

With the federal estate tax exemption at $13.99 million in 2025 and increasing to $15 million in 2026, most estates face no federal tax. However, high-net-worth individuals should meet with their attorney and financial planner to review distribution strategies.

To help avoid probate, consider retitling assets in joint tenancy with right of survivorship for automatic transfer, or add a payable-on-death (POD) beneficiary designation to appropriate accounts. Ensure that you have a successor owner on all 529 plans.

Tax Planning

If unreimbursed medical expenses exceed 7.5% of adjusted gross income, you can deduct them on your taxes. Appreciated stock can be transferred to the person who is terminally ill, and if they live for at least twelve months, that stock will receive a step-up in basis, which could provide significant tax savings. Potentially take advantage of your married filing jointly tax bracket and consider Roth conversions, as the survivor will be limited to the single tax bracket.

Summary

As my family experienced, a terminal diagnosis is profoundly challenging, yet proactive financial planning offers control and reduces future burdens on loved ones. By inventorying assets and liabilities, maximizing insurance benefits, establishing or updating estate documents to avoid probate, using available tax strategies, and communicating openly with loved ones, clients can secure their legacy and prioritize meaningful time.

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