Typically, my posts will consist of a company analysis, whether I view the company as a worthwhile investment, and what I deem to be a reasonable valuation. The purpose of today’s post, however, is entirely different. What I hope to impart in this post is:
- the importance of being debt free
- the reason dividend income should be a very important component of any financial planning strategy
- that Powers of Attorney over Health and Wealth can sometimes not be worth the paper they are written on
- the need to craft Wills that take into consideration future potential mental health issues
- the ongoing administration of assets
In essence, every proper financial plan should have a contingency plan in the event one or more family member were to experience major mental health issues.
In May 2016, at age 56, I joined my wife in retirement; she had retired in 2015 at the age of 52. Life was great! We had put a plan together many, many years ago and we diligently followed that plan. We were now in the enviable position of being financially free thus enabling us to continually add and to cross things off our “bucket list” without the fear of running out of money before departing this planet.
As part of this plan we made certain we fully repaid the mortgage on our principal residence within 10 years after having purchased it in 1990. We subsequently acquired rental properties and made it a point to ensure those properties were mortgage free within a few years subsequent to acquisition. In addition, we invested in blue chip dividend paying companies since we wanted to generate an ongoing stream of income which would not require any intervention on our part.
In September 2016 we reviewed our personal financial situation with a Registered Financial Planner. One of the outcomes of this review was that we should use a Registered Retirement Savings Plan meltdown strategy. This entails the withdrawal of funds from these plans prior to their conversion to Registered Retirement Income Funds (RRIF) at age 71. The rationale for starting withdrawals well before age 71 is because without doing so, our annual mandatory RRIF withdrawals would place us in the highest marginal income tax bracket.
All was proceeding according to plan until my wife started to exhibit increasingly unusual behavior over the past few months. I will not go into details but suffice it to say that phone calls had to be made to the police on various occasions. Each time the police showed up, they would leave telling us there was nothing they could do since she did not pose an imminent risk of physical harm to herself or others.
Ultimately, the situation reached a climax on June 26th where my wife’s psychiatrist had to sign off on a Form 1. This authorizes the detention of an individual to allow assessment of a person’s mental state. It can only occur when the medical doctor reasonably believes the person is at risk of self harm, harm to others or is unable to care for self without psychiatric treatment. In essence, this Form 1 authorized the police to remove my wife from our home (forcefully if necessary) and to bring her to the psychiatric unit at the local regional hospital.
Treatment was administered at the hospital yet my wife continued to exhibit extremely dysfunctional behavior. Essentially, my wife has been diagnosed as bipolar stage 1. This is the most severe form of this illness.
On July 17th, despite my extreme apprehension, the psychiatric doctor at the hospital suggested my wife be released on a day pass to see how she reacted. My father-in-law and I brought my wife home and within half an hour of being home, a call was placed to 911. Five police cars showed up at our house and my wife was immediately returned to the psychiatric unit at the hospital.
I have kept a chronological record of events. It is currently 19 pages long so I certainly do not intend to cover that material in this post. Suffice it to say that the severity of her bipolar condition resulted in her being transferred twice from the unit which houses mental health patients with less severe issues to that where patients with severe mental health issues are very closely monitored. In fact, she was so disruptive that other patients in the unit holding patients with severe mental health issues complained repeatedly about my wife’s behavior!
The Importance of Being Debt Free
Throughout this ordeal I have thanked my lucky stars that we are debt free.
Prior to being removed from our home by the police, my wife located a credit card she had acquired in her name only a couple of years ago. This card had been used once to take advantage of a promotional offer. After that purchase, I hid the card….or so I thought.
Throughout this “manic” period, my wife has made thousands of dollars of purchases. I suspect once she returns to her normal self she will have limited recollection of some of her purchases.
Here are just a few examples of her expenditures.
- A cell phone bill in excess of $600…just for one month!
- Hundreds of dollars of purses! I brought roughly 40 purses to The Salvation Army Thrift Store a few months ago. While my wife was hospitalized I brought another 30+ purses to The Salvation Army Thrift Store.
- I returned hundreds of dollars of clothes she purchased from various local merchants.
- Almost $300 of tickets to see a play at The Stratford Festival.
- The purchase of two paintings for more than $600…she was the successful bidder on these paintings while hospitalized. The Hospital Foundation was raising money through a silent auction of various paintings. I nixed this purchase pretty darn quickly when they phoned our home to inform me that my wife was the “successful” bidder.
- A cornucopia of “junk” my wife purchased using her credit card while she was hospitalized.
Despite my wife being hospitalized with severe mental health issues, it appears the hospital deems it appropriate for patients in this condition to leave the hospital ward. Go figure!
The list of her purchases is far longer than I have reflected above but I think you get an idea of what has gone on. Thankfully, the purchases on her credit card only amounted to $700. I say thankfully because the limit on the credit card is $8,500! Once my wife is feeling much better we will definitely cancel this credit card or dramatically reduce the credit limit.
Fortunately, the thousands of dollars of credit card expenditures my wife has incurred over the past 3 months have not crippled us since we are essentially debt free. I know, however, that a huge percentage of the North American population “lives on the edge” and credit card purchases of $10,000+ in a very short timeframe would cripple many families.
Dividend Income as a Key Component of Our Financial Planning Strategy
As previously noted, we realized several years ago that we needed to generate an ever growing stream of passive income. We decided that investing in solid dividend paying companies was a good strategy to meet this objective. I say solid dividend paying companies since I know that chasing dividend yield is foolish. In my opinion, companies which have dividend yields in the stratosphere represent a far greater risk than I am prepared to accept. I would far prefer to invest in a company such as 3M (NYSE: MMM) which currently has a sub 2.5% dividend yield than, for example, a company with a dividend yield in excess of 10%.
Throughout this ordeal, I have paid very little attention to our investment portfolio. Today is the first day since June 26th where I have looked at our investment accounts. During this recent ordeal, however, we have received a low 5 figure in dividend income in June and are on track to receive a similar amount in July! Fortunately, we have been able to automatically reinvest most of the dividends during this ordeal to acquire additional shares thus allowing us to continue to grow our dividend income stream.
In addition to the passive dividend income, we have received rental income. Rental income is NOT passive if you are managing your own rental properties! During the past couple of months, for example, I have had to renew two leases.
Powers of Attorney and Wills
I thought everything was in order prior to the recent series of events. In 2015, my wife and I engaged the services of legal counsel and we put in place new Powers of Attorney over our Health and Wealth and wrote new Wills. The Powers of Attorney over one another’s wealth are structured so we each are the primary Power of Attorney; a Trust Company has been appointed as the substitute.
Since neither of us have any experience in winding up an estate, the plan is for the survivor to engage the services of the Trust Company to assist in the filing of the appropriate tax returns and in winding up any estate.
As far as Power of Attorney over Health, a Trust Company typically does NOT act in this capacity. As a result, my wife and I have structured our respective Power of Attorney over Health wherein we would each act for the other.
When my wife was admitted to the psychiatric unit and was diagnosed as bipolar stage 1, I thought I could invoke the Power of Attorney over her Health. “Not so fast”, I was told. Even though my wife was unable to make ANY rational decision, she still had the ability to make decisions. As a result, I could not act as her Power of Attorney.
I also quickly came to the realization that if anything were to happen to me wherein I was ruled as being unable to make any decisions, my wife would be granted rights to make decisions on my behalf under the terms and conditions of my Power of Attorney over my Health. This was certainly discomforting given her mental state.
As you can appreciate, I am not comfortable with the existing arrangements. When my wife has recovered and stabilized, I will strongly suggest that we revisit the manner in which our Powers of Attorney and Wills have been structured.
Ongoing Administration of Assets
At the moment, I am confident I could easily continue to manage our financial affairs in the event my wife was to pass away. I recognize, however, this may not always continue to be the case. Furthermore, I am entirely certain my wife would be unable to manage the financial affairs if I were to pass away prior to her demise.
While I hope our daughter will eventually be able to assume some responsibilities, she is nowhere close to being prepared. I, therefore, need to revisit the role the Trust Company would play and what steps must be taken to immediately engage the services of the Trust Company to manage the daily living expenses and the administration of our equity and real estate investments in the event I am no longer able to do so.
Sometimes it takes a crisis to make you realize that perhaps your affairs are not entirely in proper order.
Once I have addressed the shortcomings I see in our current arrangements I will share with you what we did to rectify the situation.
In the interim, I am happy to report that my wife is feeling much better than just a few days ago. Up until a few days ago she created all the excitement she, other patients, and the staff required. She actually just phoned me and indicated she was bored at the hospital! I will visit her at the hospital tomorrow afternoon for a few hours after I put in my daily rigorous workout routine which has helped me keep my sanity.