I come across an elderly couple (not my clients) with a sad story to tell. I have changed some facts to protect the identity of the family but the essence of the story remains the same:

Mr. and Mrs Lee are retired. They sold their property of $900,000 and stayed in a rented property. Each of them kept half of the proceed - $450,000 each. As time passed, Mrs Lee was diagnosed with Dementia. Mrs Lee’s state worsen to a stage which she is no longer capable of handling her own affairs. Fortunately Mrs Lee’s daughter helped her to manage her existing assets and thus that $450,000 was in safe hands. In the meantime, Mr. Lee started to play with jackpot. Very quickly, he became addicted to the jackpot. Just after 2 years, he lost more than half of his money. Thus, from $450,000 it is now left $200,000 due to losses at the jackpot. Unable to get rid of his addiction, his friends and family members managed to get him sign up for gambling addiction counseling. In the meantime, the household expenditure and the smaller amount of money started to become of great concern. To raise funds, Mr Lee pawned Mrs Lee’s jewelries. They are now thinking of stopping rental and go to old folks home to reduce cost. They are not able to stay with their children because their children have their own family and there is no space in their house for additional persons.  

The above is a real story in essence. The problems that the old couple faces are nothing unusual. The following are the existing problems for the above case:

• An illness that require costly long-term care;
• Mental incapacity due to aging and thus unable to handle one’s own affairs;
• Children having no resource to help their parents;
• Addiction to gambling (this is quite common among elderly perhaps due to too much time on hand. Frequent trading stocks/CFD/forex in the name of “investment” is usually another sign of gambling addiction);
• Poor management of money
• Mrs Lee part of her money is held in trust by her daughter through a joint account. However, with no formal legal trust deed, a dispute can arise whether this is indeed held in trust or intended to be a gift.

If the couple had appointed me as their financial planner earlier on, I would have recommended the following:

• Long-term care insurance (assuming they are insurable and qualified in age) to hedge against illnesses that required long-term care;
• Hospital and medical insurance assuming insurability. If the insured is not insurable, a compromise can still be made with Aviva’s Myshield’s Moratorium Underwriting.
• Out of $900,000 say set aside $300,000 into a Trust and engage a professional corporate trustee to hold the asset just in case the persons become mentally incapable of handling their affairs. If the Trustee fee is too high, they may consider asking a trusted friend or even their children to be the Trustee and who presumably will do for free. Engaging a lawyer to draft the trust deed will be necessary but this will be just one-time legal cost.
• The balance of say $600,000 should than be set aside into an annuity to give a perpetual income without any investment risks. This is to hedge against longetivity risk. Another reason for the annuity is to ensure that there is as little money left in the couple’s saving account so that they would not have much money to “mismanage” such as gambling and so call “investments.” Even if they are prudent investors, elderly folks are highly vulnerable to be mis-sold investment products. With little money left in their account, no relationship managers will be bother to sell them anything since there is nothing in their account to use. Actually the couple do have some standby cash which is held in trust by a third party.
• Shift to the smallest flat that can be found in the market to reduce rental cost.

For creating the financial plan and the work to coordinate and execute the insurances, trust and annuity require significant time and effort. It is obvious that the execution usually require a period of time rather than a one-time transaction. I would charge a modest financial planning fee for this couple. This is to the interest of all parties – the clients know that the plan is created for the best interest for them, and the planner is fairly remunerated for having spent the time and effort.