BY: DAVID RUSSELL, CFP®, CSA®
Vice President & Trust Officer | (601) 707-0008
Estate planning professionals have experienced a resurgence in business over the past couple of years. Demographic realities have contributed much to this resurgence. According to a report issued by researchers at the Center on Wealth and Philanthropy (CWP) at Boston College, an estimated $59 trillion will be transferred from 93.6 million American estates from 2007 to 2061, in the greatest wealth transfer in U.S. history. The generation responsible for this transfer is the baby boomer generation, born between 1946 and 1964.
The increase in the estate tax exemption to $12,060,000 per person (in 2022) has also reduced the need for sophisticated estate tax planning for all but the ultra-wealthy (those with more than $24 million of assets). Unfettered by having to plan around taxes, estate planning professionals can now focus on what really matters about estate planning in the first place: getting what you have, to who you want, in the manner you choose. All else is under-the-hood tinkering and legal draftsmanship designed to accomplish this basic objective.
Changes in estate planning
Many of the current estate planning discussions on this topic include the scenario of older parents — usually the father is a small business owner with some degree of wealth — designing their estate plan to reflect their personal values and to teach their younger adult children the responsibilities of wealth. Often the techniques that result from this process include the execution of various personal or charitable trusts, tutelage for younger heirs on how to manage money, projects to instill a strong work ethic, and the inclusion of children in the family’s philanthropic mission. While the ultra-high-net-worth family has incorporated this type of planning for years, it’s become mainstream planning even for those with more modest estates.
This is a good thing and revives the idea of a “testament” to accompany the stuff that is disposed of by one’s “last will.” Testament comes from the Latin testari, meaning “testify,” and from the Greek diathēkē, meaning “covenant.” Estate planning conversations are now more about words like “legacy,” “ethics” and “family unity,” and focus as much on the transference of values as they do the transference of assets. Could this be partially driven by the effects of sudden wealth on a generation that, in the eyes of their older parents, are ill-prepared to handle it? The image of spoiled trust babies who never learned the value of a day’s work doesn’t sit well with today’s self-made, socially conscious, wealthy baby boomers.
Facing demographic facts
On the other hand, does overemphasis on legacy planning, values-based planning, or whatever we choose to call it these days risk denial of another demographic fact: The average life expectancy of a baby boomer turning age 65 today is well into their late 80s, and the fastest-growing demographic is aging baby boomers. Let’s not forget that most estate plans don’t take effect until after someone dies, and for married couples, it’s often after the surviving spouse dies. In other words, do these legacy-focused estate plans contemplate that Mom or Dad will still be around 30 or more years after they are drafted? Have we made it too easy to focus on planning for young adult children who are more likely to be in their 50s, 60s or even 70s by the time these plans are executed? If a 63-year-old widow’s youngest son is 35 today, assuming the mother lives to age 90, that son will be 62 years old by the time his mother’s estate transfers to him and his siblings. Spoiler alert: If your kids have not adopted your money values when they’re in their 60s, they’re not going to.
I think part of the issue is our reluctance to plan for being old and dependent. Most conversations with couples about planning for dependency and advanced age go something like this:
Him: She’ll definitely outlive me. No way I’m going into some home or living with my kids. I plan on dropping dead on the golf course [in the tree stand] [on my boat] [on my tractor] [fill in the blank].
Her: I just don’t want to be a burden on my kids. [read: I don’t want to lose independence]
Change the plan if necessary
The unfortunate but statistically significant scenario is that he is likely to experience a significant health event, with her taking care of him for a year or two before she must put him in a nursing home, where he’ll live the remaining 12-24 months of his life. She is then likely to live on in widowhood for 10-15 more years, the last four or five under the care of children, sitters, nurses or institutional care. Family mission statements, mottos and values will be internal drivers rather than formal documents, and resources may be more necessary for Mom’s ongoing care and quality of life than for perpetuating some abstract idea.
The solution is not to push the pendulum too far the other way by creating estate plans only for those actuarially close to death, but to recognize the dynamic nature of all plans. Sun Tzu, whose seminal work The Art of War is still used today in military training as well as in business schools, understood this principle and applied it to the battlefield. He originated a view shared by elite
strategic theorists down to the present: that the most brilliant plans are those that spring into being in the dynamic of action and response. I believe this is true as well with estate planning. We must remind clients that the estate plans we design today will be outdated in five or 10 years. But we must then position each iteration of their plan as a chapter in the biography of their lives, not a waste of time or money since they didn’t die to effect it, but a true testament of the values we helped them identify when death was easier to fathom than old age.
How Heritage can help
Do you and your family need assistance developing or reworking your estate plan? We’re glad to help however we can. Contact us at 877-887-8899 or make an appointment at our office nearest to you.