My Friend Is Barely Hanging on Financially. She Doesn’t See the Crisis That’s Coming Down the Line.

Pay Dirt Photo illustration by Slate. Photo by Getty Images Plus. Pay Dirt is Slate’s money advice column. Have a question? Send it to Kristin and Ilyce here. (It’s anonymous!) Dear Pay Dirt, My lifelong friend “Sarah” is in her 40s, single, and struggles to support herself and her younger sister, “Melanie,” who falls into that crack where she is not officially mentally disabled, but is only capable of working a very basic, part-time job that just about keeps her fed. Their parents both died in their 50,s and Sarah, too, is in very poor health for her age. She is only able to maintain a few thousand dollars of savings at a time, and even that is impressive given what she makes and her expenses. But I’m really worried about their future. There is currently zero plan or provision for Melanie in the event of Sarah’s passing. To tell the truth, I’m probably more worried about it than they are, because Sarah’s mind is so consumed with just getting by day-to-day, and Melanie meanwhile is pretty much incapable of forethought. I’m a woman in my 40s, happily married but childless. I work in a creative field and don’t make much, but my husband earns enough that we’re secure, though far from rich. My husband and I are both very private, eccentric people and do not want to have to take Melanie into our home. Instead, I’m considering offering to buy a life insurance policy for Sarah. Melanie cannot manage money, so it would be up to Sarah if she trusts me to be the beneficiary but only use the money for Melanie’s benefit, or if she’d prefer to set up a trust for Melanie with me as the trustee, and make the trust the beneficiary. I’ve never done anything like this before, so I have pretty much all the questions. Is all of this possible? Can you get a life insurance policy for a nonsmoking but obese 40-something with chronic health problems that will pay out enough to rent a studio apartment for possibly 20 years? How much should I expect the monthly premiums to be? How much would a trust cost to set up and what needs to be done to maintain it? Are there any better ideas that I’m not thinking of? —Just Thinking Ahead Dear Just Thinking Ahead, There’s a lot of love in your letter. Love for your friend, Sarah, who it seems has had a crushing life of poor health, financial struggles, and a lot of difficult responsibilities, and for her sister, Melanie, who one day will be facing a difficult future without the person who has been her rock. You see the crisis that’s coming that no one else is planning for. And, you’re stepping up. Amazing. The simple answer to your question is life insurance and a trust to manage it going forward. You want the funds held in trust for Melanie, as the named beneficiary, and you want that managed by a responsible person: you, your husband, and perhaps someone who is named as successor trustee who can manage this if you or your husband aren’t able. How much life insurance would she need? You need to calculate what 20 to 30 years of safe housing would cost in your area, as well as the other expenses she’ll need to pay: rent, utilities, food, transportation, phone, clothing, personal care, healthcare co-pays not covered by Medicaid (I’m assuming she qualifies for that). I ran some generic numbers: If you assume rent on a studio is $1,200, utilities are $250/month, food is $400/month, and everything else is $270 per month, then the total monthly cost is $2,120 in the first year, or $25,440 per year. If you also assume inflation is 4 percent (high, but better to over-estimate), then by year 30, her monthly cost would be about $6,614, or just under $80,000 per year. Over 30 years, assuming she lives that long after Sarah dies, the total cost is $1.4 million. Now, that number looks alarming, but Melanie would continue to work for a number of years, which can help defray it. And, if the payout is invested, and earns 5 to 6 percent while Melanie draws down her living expenses, the lump sum needed is probably closer to $600,000 to $800,000, depending on investment returns and whether Melanie qualifies for SSI, Medicaid, or subsidized housing. Now, let’s talk about the life insurance policy: It’s not a sure thing. Sarah is, in your description, an obese 40-something nonsmoker with chronic health problems. She could get a level-term policy for something close to standard rates or something way higher. She could also be declined, depending on what her illnesses are. You don’t know what you don’t know, so start with a conversation. Take Sarah out for a quiet conversation and tell her what you want to do. Engage her in the process, so the end result meets everyone’s needs. Then, talk with a Certified Financial Planner, estate planner, or estate attorney, who can run much more specific numbers based on where you live and what sort of timeline you’re looking at and who can help draft the necessary documents. Then, find a reputable life insurance agent (or go online) and start looking for policies that are affordable. One thing to consider: There may well be funds left in the trust after Melanie has passed away. Since you are putting up the funding for the policy, you may want to name a successor beneficiary, whether that is a nonprofit you support, distant relatives, or other friends who may greatly appreciate even a modest windfall. —Ilyce Classic Prudie My wife and I are almost 30: We’ve been friends since we were about 12, a couple since 18, and married since 22. Neither of us has ever dated anyone else, but now I’m thinking it might be that time. 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