Case study brief
Derek and Mary, a married couple in their early 60s, approached us following the news that Derek had been diagnosed with a non-malignant brain tumour.

Derek had previously handled the family finances. He had pursued a successful professional career, while Mary had taken time out of work to look after the children and had worked part-time since the birth of their children. As a result, Derek had built up assets mainly in his name. He had a number of pension plans from previous employers.

The couple wanted to be sure that their future was secure given that Derek was already suffering from a severely diminished mental capacity. Mary had already taken control of the family finances, but while she was capable, she had limited experience of handling these matters. She needed some assistance with the bigger decisions given the importance of the changes they were going through.


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Peter is 10 years younger than Richard and was concerned to start thinking about his future and paying more attention to his personal finances, which, as it turned out, were quite strong in some areas yet quite weak in others. Laura was keen to understand her divorce-related final salary pension entitlements and was uncomfortable in feeling that she was not really contributing to the family's current and future financial success, given that Peter was the main breadwinner and had contributed the greater share of the family's assets.

Case Study

This was a particularly interesting case to deal with since it involved lots of complex issues at once. The situation showed the value of dealing with a Financial Planner, as we were able to bring together all the clients' issues and help them to find a way through the difficult financial decisions they had to make. The case involved many different aspects: serious illness, creating a secure future, justifying critical illness claims, dealing with Deputyship, and liaising with other professionals where appropriate. I felt that we were in the best position to help the clients to come to terms with their problems, and to help them to co-ordinate their other technical needs. In particular, this case shows how avoiding action in practical areas, such as setting up a Lasting Power of Attorney, can have massive implications later on.
In the initial meeting, it was clear that Derek was unable to make decisions on his own. Although his brain tumour was not cancerous, it was still causing pressure on his brain. The pressure was affecting his mental capacity and had led to him being diagnosed with dementia. He underwent an operation to alleviate the pressure, but this was not successful.

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This meant that Derek was likely to require specialist care within a short period. Given that he was still physically fit and at a relatively young age for someone needing care, they had to prepare their finances for a very long period of funding care costs.
Unfortunately, the couple had not set up a Lasting Power of Attorney. The first port of call was with a specialist solicitor. Since Derek's condition had deteriorated too far it was not possible to set up a Lasting Power of Attorney. This meant that the Court of Protection had to become involved, and this affected their finances in unintended ways.
The couple's financial situation was very difficult at first since Derek's consultancy business had suffered as a result of his illness. They had generated some debt due to falling income levels. We had to work with his accountant to close down the business, and then helped to restructure the couple's finances.

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Derek did have some critical illness policies. At first, Derek's illness was not sufficiently serious to justify a claim. Initially we helped to claim the contribution protection benefit. This was extremely important for them since their finances had deteriorated to the point where they were considering cancelling the policies as they could not afford to keep up the payments. Without our involvement, the policies would have been cancelled and they would have lost out on hundreds of thousands of pounds. When Derek's condition worsened we were them able to secure the lump sum claims under the Total and Permanent Disability section. However, this was not without difficulty. Derek's condition was not covered by specific conditions in the policies, so it took nearly 2 years to get the requisite medical sign off to justify the claims. This shows how a Financial Planner can be vital in making such claims. The claims department seemed to go out of their way to make the process slow and difficult; the medical consultants were reluctant to complete the paperwork necessary to justify a claim. We had to be particularly tenacious in not letting either side avoid their responsibilities. We were able to secure one smaller payment of £50,000 relatively quickly, which meant we could pay off the family debts accumulated during Derek's illness. The second, larger policy of £300,000 paid out much later, but this was to prove pivotal to securing their finances. The capital available from the larger policy was effectively the difference between a difficult future for the couple, and a more secure one. Ultimately, this shows the value of expensive cover such as critical illness.

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By this date the decision had been made that Derek required specialist medical care. He was transferred to a local nursing home, at a cost of around £650 per week since his needs were different to the average dementia patient. By this point, Mary had been appointed as Deputy for Derek with the Court of Protection. This meant that she would be responsible for dealing with Derek's finances and had to justify her actions to the Court on a regular basis. Unfortunately, this resulted in unexpected consequences for the couple since the Court did not treat their assets in the same way that the couple would have done had their situation not been changed by Derek's illness. Since Derek had been a high earner, he had built up significant pensions in his name. As a part-time worker, Mary had much lower pensions. They jointly owned their house and held some limited savings as these had been reduced by their lack of income and debts. Derek had received the first critical illness pay-out, but Mary had no savings in her own name.
The Court of Protection decided that Derek's assets were his alone, and had to be used solely towards his significant care costs. This put Mary in an extremely difficult position as almost overnight she was made effectively destitute. As she had given up work to look after Derek, she had limited income, and was not entitled to receive a share of Derek's pensions. This was unfair to Mary, given her situation, but shows how a lack of planning earlier led to serious potential harm later on. Had they planned their finances better earlier on, they would have set up a Lasting Power of Attorney, which could have avoided all the complications and expense of dealing with the Court of Protection.
Initially, we prepared an analysis of Derek and Mary's positions. Since their finances were now separate, we approached this individually.

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Mary was concerned about her own financial security, as well as her ability to fund Derek's care fees. This plan showed that Derek's pensions were enough to fund much of his care costs, but that additional capital would be needed from the critical illness proceeds to top this up. The analysis showed that Derek's capital was likely to be used up within 8-10 years. In her capacity as Deputy we worked with Mary to build a suitable investment plan with the remaining capital to provide a flexible, cautious investment portfolio to help Derek's money last as long as possible. We also claimed Derek's pensions as they were now due, to help fund the care costs. Tax-free cash from these pensions was also invested for growth and income using a cautious flexible investment portfolio contained within a wrap. Over time Derek had to withdraw capital from his investment portfolio to allow Mary to pay his care costs. This meant we tended to keep a significant portion in cash. Our Financial Planning and Investment Management reports were enough to satisfy Mary's duties to the Court that she had acted in the best interests of her husband. These reports were used by Mary to show that she had considered Derek's needs and future expenses. The reports were able to show the Court that she had taken decisions based on Derek's long-term needs. The reports were further proof that she had taken professional advice, which helped satisfy the Court that she was taking appropriate action. As these services are recurring, their situation is regularly reviewed. Further reports can then be used with the Court to demonstrate that Mary has examined Derek's changing circumstances.
Mary's situation was more difficult since she had limited income from State benefits. Her pensions were not yet due.
Our advice was to challenge the decision of the Court of Protection to exclude Mary from Derek's income. As a result after some months she was able to obtain some concessions to fund her own living expenses from Derek's income, and to use some of their joint capital from the second critical illness plan for her own needs. This remains under review, but at least allows Mary to be able to live without needing to access too much of her own capital. At that point our financial plans showed that Mary had enough to live a relatively frugal lifestyle for the rest of her life. This meant that she could focus on delivering care to her husband.


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Since then, Mary has been able to secure significant funding for Derek's care with the advice of her solicitor. They have secured Continuing Healthcare funding for Derek's care costs, which means that the majority of his care fees are paid by the NHS. The result has meant that when we recently reviewed Derek's financial plan, he no longer needed to dip into his investments to fund his care fees. If this situation continues, this will mean that some of his capital will pass to Mary on his death. This is due to the fact that the NHS funds Derek's care, meaning that his invested assets are not required at present. Since Derek had a will in place before his illness, Mary will benefit from his unused cash assets if he dies before her, which is likely. This will need to remain under review since the Continuing Healthcare funding is not guaranteed.
Mary has since altered her will to pass her assets to her children rather than to Derek.

What happened next?

Since that date we have reviewed Derek’s and Mary’s situations separately as their incomes, expenses and investments change. Their positions remain fluid since the Court of Protection and NHS could change their position at any point.

Therefore, we need to keep their investments flexible to allow for possible changes in the future.

At present their separate financial plans show that both clients have enough income and capital to allow for their projected future needs.

We will continue to schedule regular reviews to analyse their changing position.





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Key Points

• ·       This case study deals with the effects of a serious illness on a couple and shows the consequences of not taking proper practical precautions prior to this
  
  ·       The Financial Planning process was more complicated as a result of a lack of planning previously.
  
  ·       When the Court of Protection gets involved, there can be unintended results which seriously affect the living situation of clients.
  
  ·       We were able to reinstate the couple’s finances on a more stable footing after collaborating with other professionals. 
  
  

Bio

Dan Woodruff LLB CFP – Woodruff Financial Planning

Dan is the owner of Woodruff Financial Planning and is a Certified Financial Planner professional. He is a graduate of Cardiff University, where he obtained a degree in Law, and Nottingham Law School, where he completed the postgraduate training to be a solicitor. He worked for two large insurance groups and then set up Woodruff Financial Planning in 2003 in Colchester, Essex, where he lives with his wife and daughter. Dan is responsible for financial planning matters with clients who include business owners, professionals and investors. Dan is currently part of the Colchester Carnival organising committee.

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