This is the second installment in a series about Hollister Lindley, a 62-year-old resident of Richmond, Va., and how she is changing the way she lives after being diagnosed with amyotrophic lateral sclerosis, a fatal condition also known as Lou Gehrig's disease. Read “Living with ALS” part one “One Day at a Time,” and see Lindley’s “Life in Pictures.”
After getting her doctor's formal ALS diagnosis in fall 2011, the first three people Hollister Lindley told were her husband, financial adviser and estate attorney. "My investment strategy has always been buy and hold," she says. "But I called my broker right away, and I said, 'You have to move me from a growth portfolio to an income portfolio.' She started doing that basically the day after I was diagnosed."
ALS can be an expensive disease. Hollister has lost the ability to walk and now rides around her suburban home in a $30,000 motorized wheelchair. Unable to drive a normal car, she has an $80,000 van with an automated lift for her chair. On her dining room table lays a set of plans to build a new addition to her home that will accommodate her as her ALS takes its course. The addition will cost north of $250,000.
While few, if any, people would change places with Hollister, the good news is she is financially self-sufficient. Hollister inherited an estate when her mother died. Her family did well in the banking business and later prospered in Hawaii, where Hollister moved 60 years ago as a little girl. "I was probably about 6 years old when I first got the family lecture about the difference between income and capital," she recalls.
Hollister's estate included stocks that had been owned for decades and were purchased for very little compared with their current market prices. Selling those stocks to generate income would have triggered enormous capital gains taxes. Instead, Hollister placed these holdings in trusts without triggering a tax liability. The market value of each trust was immediately reset to the stocks' current values, and the trusts promised to pay Hollister a fixed return on this value for the rest of her life. At her death, the trust assets will be contributed to organizations that Hollister wanted to leave money to in the first place.
Other practical moves included changing her will, giving power of attorney to her husband, Rich Kern, and executing an advanced medical directive making her end-of-life wishes clear. "It seemed really important to get that power of attorney to Rich," she says, "because they don't know where the disease is going to go." Or how fast.
Her altered investment priorities triggered a parallel set of changes to her investment holdings.
"Hollister knows a lot about the world of medicine, and she's a very good businesswoman," says Chris Sovine, her longtime financial adviser in Richmond, "and I think that she understood that while she had a portfolio of investments that were right for yesterday, they were not right for her today."
Having worked for several medical companies, Hollister has a heavy concentration of stocks in the medical technology sector. The stocks are great for growth, perhaps, but not for income, and the concentration created a level of investment risk she could no longer accept.
"We had to lessen her exposure to that concentrated part of her portfolio," Sovine says, "and we had to increase her exposure to investments that were safer and that would respond to her income needs, which clearly were going to go up."
"We cannot risk her losing 15 or 20 percent of her portfolio in a concentrated position should the market go down," Sovine adds. "The portfolio has to stay intact; she can't make that money back."
This has translated into converting growth stocks into a lot of cash, dividend-paying stocks and closed-end funds. Sovine favors them over mutual funds because they trade like stocks and provide more control over trading prices. And while an income-producing portfolio traditionally would include bonds, bond yields are so low today that "you may as well leave it in cash," Sovine says.
"We have to make sure that pool of money is there," she adds. Because Hollister's health could decline quickly or slowly, Sovine explains that she needs "way more of a cash balance than most people would want to have" to cover medical costs. She says that while clients can be reluctant to share details about their health, Hollister has been "very open and honest."
"That is one of the biggest things that helps me – she is willing to talk to me about her needs," Sovine says.