Estate/financial planning when suffering from a terminal illness is a two stage process. The first stage comes during the illness when finances need to maximized to treat the illness. If you are terminally ill and still working it can make a significant difference in terms of cash flow. Group disability benefits may be available through your job and workers compensation or Social Security disability might be possible. Maybe you have private disability insurance to supplement the other coverage.
Disability benefits may or may not be taxable. Chances are if it is a private policy they’re non-taxable. Benefits from a group-policy through an employer are not. They are considered taxable income. If you pay the premiums on your group coverage, then it will be tax exempt. If you only pay part of the premium, then it is taxable
Once you leave the workforce the second stage is in effect and a different cash flow is needed. At age 59 1/2, you can tap IRA’s, 401(k)s without occurring any penalties like the 10% early withdrawal penalty. Income tax will probably kick in, but not on a significant level.
Another source of cash can com from existing life insurance policies. Depending on the policy, you might be allowed to dip into it under certain health conditions. A typical policy will allow a lifetime payout if you have less than two years to live.
People who are terminally ill will want to be sure that their assets smoothly pass to loved ones or favored charitable causes. Thus, a thorough estate planning review can help put the your mind at ease.
In 2018, the federal estate tax exemption is $11.2 million for single taxpayers and $22.4 million for married couples. Such an exemption means relatively few people will leave an estate that is subject to federal tax; consequently, many terminally ill people below those asset levels may ignore estate planning for the federal level.