Ken Kossoff - Estate Planning Blog

Understanding Long-Term Care Finances and Planning

It may be impossible to know when you’ll need long-term care, but chances are good that you will. Think Advisor’s recent article, “Making Sense of Long-Term Care Planning” says that statistics show that 70% of older Americans will need long-term care in their later years.

However, to some degree, an individual’s circumstances can predispose them to needing assistance. Some factors include:

• Lifestyle choices that you’re making now that could factor into needing care;
• Participation in risky hobbies or health-maintenance choices that could contribute to the onset of debilitating illness;
• Ways in which you might reduce risk of injury or illness;
• Home modifications you can make to better accommodate changes in mobility; and
• Hereditary illnesses and conditions that increase your risk.

Not everyone qualifies for long-term care insurance, and those with certain health conditions could be denied long-term care insurance. Lifestyle choices that affect health conditions, can weigh into their projected need and planning.

To make wise financial decisions for meeting long-term care needs, begin with a realistic understanding of the cost of long-term care. Roughly 25% of all seniors will need to pay over $50,000 for long-term care. If someone choose to pay for in-home care, the national median annual cost of an in-home aide in 2017 was $48,000. For 24/7 care in your home in the Conejo Valley and surrounding areas, you can expect to pay $215,000 per year.  If you choose to "employ" caregivers directly instead of going through an agency, you should consult with an employment attorney or you could end up paying a lot more than $215,000 per year if you fail to carry worker's compensation insurance, do not pay overtime when required, or fall into other traps that those not familiar with California employment law often face once they are sued by their former employees. 

Unless you’re very wealthy, odds are you’ll need a safety net in place to cover long-term care costs. When deciding how to begin, review these factors:

• How close are you to retirement?
• What savings and insurance programs do you have to help pay for long-term care?
• Do you have a plan to pay for the costs of long-term care?

It’s a common misconception that Medicare will pay for long-term care. It will not.  There are several other ways to cover the cost of care:

Long-term care insurance. While you hear a lot about rising premiums on long-term care policies, it’s still a good move for many individuals, who fall into the gap between qualifying for Medicaid and being wealthy enough to afford long-term care outright.

Supplemental insurance. Some people may benefit from Medicare Supplement insurance or Medicare Advantage plans. Medicare Advantage plans are an alternative to Medicare Part A and Part B. Medicare Supplement insurance can help to pay for deductibles, co-payments, and other out-of-pocket expenses.

Prepay funeral costs. Funeral costs are big, and even with a good financial plan in place, paying for a funeral before the estate is settled, can create a financial hardship for loved ones. You can avoid that with a prepaid funeral plan.

Are there millions of other things you’d rather think about? Yes, but this is something that prior planning can make far easier for you and your loved ones.  Call our office to discuss a life care plan with our attorneys and medical social worker, so we can help you assess what type of long-term care you can afford given your financial resources and you needs.

 

Reference: Think Advisor (September 4, 2018) “Making Sense of Long-Term Care Planning”

You Switch Healthcare to Medicare—But Your Doctor Doesn’t Accept It. What Now?

One of the bigger changes of retirement, is switching away from your employer’s healthcare plan to Medicare.  However, what if you make that change and then when you come in for a regular appointment with your physician, who has known you for decades and learn that he doesn’t take Medicare?

Investopedia’s recent article, “Do This When Your Doctor Doesn't Take Medicare,” explains that if your long-time doctor “accepts assignment,” it means he or she agrees to accept Medicare-approved amounts for medical services. That’s super. All you’ll need to pay is the annual Medicare Part B deductible ($183 a year in 2018) and a 20% co-pay for every visit.

However, with the federal program’s low reimbursement rates, restrictive rules, and arduous paperwork process, many physicians are refusing to accept Medicare’s payment for services. Look at the numbers: In 2000, almost 80% of the Texas Medical Association’s doctors were taking new Medicare patients. In 2012, that number dropped to fewer than 60%.

More doctors are turning down Medicare, because it typically pays doctors only 80% of what private health insurance pays. While a gap always existed, many physicians feel that in the past several years Medicare reimbursements haven't kept up with inflation (especially the expense of operating a medical practice), while the rules and regulations keep getting stricter, along with the penalties for non-compliance.

Here's what you can do, if your doctor doesn’t accept Medicare:

1. Stay with Your Physician and Pay the Difference. If your doc’s what’s known as a “non-participating provider,” it means she hasn’t signed an agreement to accept assignment for all Medicare-covered services but could still choose to accept assignment for individual patients. Therefore, Dr. Doe may take Medicare patients, but she doesn’t agree to Medicare’s reimbursement rates. These non-participating providers can charge you up to 15% over the official Medicare reimbursement amount.

If you stay with your non-participating doctor, you’ll have to pay the difference between the fees and the Medicare reimbursement. You may also have to pay the entire amount of the bill during your office visit. If you want to get reimbursed, either your doctor will submit a claim to Medicare or you may have to submit it yourself.

2. Ask for a Discount. If your doctor is what’s termed an “opt-out provider,” she may still be willing to take Medicare patients, but she expects to be paid her full fee, not the much smaller Medicare reimbursement amount. These doctors accept no Medicare reimbursement, and Medicare won’t pay for any part of the bills you receive from them. You’ll be responsible for paying the full bill out of pocket. These opt-out doctors must disclose the charges for all their services up front. These doctors will also have you sign a private contract saying you consent to the opt-out method.

You can try to negotiate a discount. It's not unheard of for physicians to lower their rates for established patients. They might also offer you some payment terms, as a courtesy if you require expensive treatments or procedures.

3. Try a “Doc in the Box.” Many urgent care centers and walk-in clinics take Medicare.
4. Get a Referral. If you can’t afford to remain with your doctor, ask her to recommend the next best doctor in town who does accept Medicare.
5. Start Looking. There are many doctors who take Medicare. You can find them in Medicare’s Physician Compare directory. When you find a provider, contact them to see that they’re still taking new Medicare patients.

In a perfect world, when you were getting yourself signed up with Medicare you would have taken the time to find out if your doctor accepted it, and you might have even had a conversation with the office manager, so you would know what to expect. However, here’s an important point: if you have health issues and you have had good experiences with your current doctor, it may be worth the investment in your health.

Reference: Investopedia (June 14, 2018) “Do This When Your Doctor Doesn't Take Medicare”

Find Out First: Early Withdrawal Penalties May Not Apply

Most of us are mindful about following the rules to avoid unnecessary penalties for savings and investment accounts with early withdrawal penalties. We might be missing out on some opportunities, says CNBC’s article, “Sometimes, early withdrawal penalties don't apply.” There are situations where the penalty may not apply to you, or the benefits of the withdrawal outweigh the penalty. Read the fine print, so that you know what the penalties are, and then do an analysis, instead of assuming an early withdrawal will become too costly. Just be mindful of what you are doing and don’t take money you are saving for retirement unnecessarily.

Certificates of Deposit. If your CDs are growing at less than 1% a year at a bank, but the bank across the street is offering annual returns of 1.72% on their certificates of deposit, you might consider an early withdrawal, despite a penalty of three months interest. Do the math: you might be ahead financially after three months, at the other bank's higher interest rate.

529 Plans. There's no early withdrawal from a 529 plan—the tax-advantaged account that can be used for education-related expenses. That’s because there are no rules as to when you can use the money. The rules stipulate only what you can use it for, which is just education-related expenses. There’s a penalty if you use it for other reasons. It’s a 10% tax penalty, as well as income taxes on the account's earnings. In many cases, the family’s no worse off than they'd be in a taxable account.  However, you may have to repay the state income tax benefits you received for using the account. If your child does plan on going to college, the withdrawals will leave your savings with less time to compound.

Retirement savings. An early withdrawal from your retirement account is a huge black eye in personal finance. Using an individual retirement account (IRA) or 401(k) plan before the age of 59½ can mean a 10% penalty, income taxes, and a depleted fund for your retirement. There are several exceptions to the 10% penalty, eliminating that expense when you withdraw early from your retirement account. However, there's confusion about when the penalty does and does not apply. For example, if you decide to retire at 56, you can withdraw from your 401(k) without any penalty. However, if you roll it into an IRA, you'd have to wait until 59½ to have your money without consequences.

If the money is being used for serious medical expenses, or if there’s a medically documented disability, or death, penalties may be waived for 401(k) plans or IRAs. Using the funds to pay for health insurance while you’re unemployed is also permitted, and there are also rules for divorce. Check with your financial advisor and/or the financial institution for each account.

Reference: CNBC (August 21, 2018) “Sometimes, early withdrawal penalties don't apply”

Top Ten Ways to Lose Your Retirement Savings

A Gallup poll found that about half of Americans who are still working, don’t think they’ll have enough money to retire, but if you ask people who are already retired, 78% report that they do have enough money to live comfortably.

Whichever group you fall into, this Fox Business article, “10 mistakes that can sabotage your retirement savings,” offers ten retirement money mistakes to keep in mind.

1. Failing to consider the effect of taxes on retirement income. You need to calculate how taxes could affect your savings. Some retirement savings plans are taxed, when they’re withdrawn. A big mistake many retirees make is believing that Social Security isn’t taxed, but 85% of Social Security can be taxed.
2. Failing to consider the effect of health care costs in retirement. This can be expensive and includes things like deductibles and out of pocket payments—not just the costs for a health care plan.
3. Failing to consider the effect of potential long-term care costs in retirement. It’s easy to forget to consider the day-to-day costs of long-term care, like assisted living, nursing homes, and in-home care. Medicare will pay for certain care for 30 days, but after that it has to come from your own savings.
4. Failing to have enough liquidity and an emergency fund. You need to have money invested appropriately for retirement, so it can be accessed when you need cash.
5. Having too much money tied up in your home. This isn’t a liquid investment, and if you have too much of your net worth tied up in your home, you may experience a lack of liquidity when you need it.
6. Starting your retirement with significant levels of debt. Pay off or reduce your debt before retirement. Otherwise, your debt can debilitate your finances.
7. Failing to plan for Social Security. There are a lot of strategies for using Social Security to maximize the amount of money you’ll receive. You can begin receiving Social Security payments at age 62. However, if you wait, you’ll see more money.
8. Spending too much early in your retirement. Trips are nice, but your money has to last as long as you do! People who spend too much during the early part of their retirement years, can find themselves in a financial pinch later on.
9. Failing to assess your risk. You need to have risk-appropriate investments in retirement. Consider your risk tolerance, since being too risk averse could eat into the value of a savings plan.
10. Going it alone when it comes to an estate plan. An estate planning attorney will have the experience and insight to make sure that you and your family are protected from the inevitable: illness, disability, divorce, or death. Don’t leave this part out of your plan.

Reference: Fox Business (August 3, 2018) “10 mistakes that can sabotage your retirement savings”

What Should Never, Ever Be in Your Wallet

What’s in your wallet, and how bad would it be if it was stolen? If you keep all the wrong things in your wallet, even an accidental loss could lead to identity theft, credit card fraud and a host of serious financial problems.

Kiplinger’s recent article, “The Worst Things to Keep in Your Wallet,” identifies the things you should immediately take out of your wallet. After you’ve done that, photocopy whatever’s still in your wallet. That way, if your wallet is lost or stolen, you can at least quickly and easily file reports.

Your Social Security Card. There’s no faster way to identity theft than losing your Social Security number. Criminals can use your SSN to apply for loans in your name or obtain credit cards. Never carry your Social Security card or even a piece of paper with your Social Security number on it.  You should also be certain that there’s nothing else in your wallet has your SSN on it, like other forms of identification.

Your Handy-Dandy Password Cheat Sheet. Admit it, you have one. Maybe it’s taped to your computer or under your keyboard. It’s your password cheat sheet. We Americans use at least seven different passwords to access all of our accounts. It is recommended that you create individual passwords made up of unique combinations of numbers, letters, and symbols that you change regularly. How do you remember them all? For most of us, it’s a cheat sheet. One of the worst places for a password cheat sheet with your financial passwords is your wallet. Instead, you can jot down your passwords and keep them in a locked box in your house. You can also use a digital password manager.

Your Spare Set of Keys. A step beyond the lost wallet, is a lost wallet with your spare house key along with your ID that shows your home address. It’s an invitation for thieves to break into your home. Instead, keep your spare key with a relative or friend.

Checks (Really?). OK, some people still write checks, and many of us still carry a blank check in our wallets—"just in case"—for emergency purposes.  However, blank checks are risky. A criminal can use a blank check to quickly drain money from your bank account. If the stolen check isn't used, it has your bank account and routing numbers on it—a target for electronic withdrawals from your account. Just take the checks with you that you might need immediately and leave the checkbook at home.

Your Passport. A passport, like any government-issued photo ID, can be a gold mine to use against your finances, if a criminal gets his hands on it. If you’re traveling in the U.S., take only your driver's license or other personal ID. Leave your passport book and wallet-size passport card in a safe place at home or in a bank safe-deposit box. If you’re traveling abroad, carry a photocopy of your passport and leave the original in a hotel safe.

Multiple Credit Cards. How many credit cards do your really need? Just think how svelte your bulging wallet could look with fewer credit cards in it. Therefore, if your wallet is lost or stolen, you won't have as many credit cards to cancel.

Your Birth Certificate. Do you really need to carry this around?  If only your birth certificate is stolen, it won't get anyone very far. However, a criminal could use it with other types of fraudulent IDs and do some major damage to your finances.

A Bunch of Receipts. Why do you need all those receipts crammed into your wallet? Businesses are prohibited from printing on paper receipts, more than the last five digits of your credit card. However, skilled thieves could use those last five digits and merchant information on receipts to phish for the remaining numbers on your credit card! Get rid of those receipts and shred them. If you need to keep receipts for possible returns or warranties, ask the merchant to send you a digital receipt instead.

Your Medicare Card. With our awareness of fraud today, it’s hard to believe that Medicare cards used to have their Social Security card printed right on the card.  However, if you have an old one, be careful with it. This is being changed, but it’s gradual.  Therefore, you may not have a new card until April 2019. One workaround: take the Medicare card out of your wallet and replace it with a photocopy of the card—be sure to black out your Social Security number on the photocopy. You should also file the Medicare card in a secure place, where you will be able to get it if you need it.  Be sure to remember where you put it!

Reference: Kiplinger (August 17, 2018) “The Worst Things to Keep in Your Wallet”

What You Need to Know About Employee Stock Purchase Plans

If you work for a company with an ESPP, you may want to take advantage of the ability to get a discount on stock purchases, reports CNBC in the article, “What you need to know about your employee stock purchase plan.” This can be a good way to boost your bottom line and, depending on when you sell your holdings, may have some tax advantages.

While the operation and integration of your ESPP into your overall financial plan is something you should discuss with your financial advisor -- and I am not a financial advisor -- let’s first look at how an ESPP works.

You’ll typically get an email or memo that says your employer is going to allow you to buy its stock at a discount, maybe something like 10 to 15%. If you choose to participate, the deductions are taken from your paycheck, just like your 401(k) contributions.

Employee contributions accumulate between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. Therefore, the stock is purchased in bulk at one point in time, along with other employees' contributions. These purchases typically occur every six months.

An employee can then sell those shares right away and lock in the gains from the discounted price he or she paid, or they can hold on to the shares for later.

If you'd like to hold your employer stock for preferred tax treatment, it’s wise to wait until at least one year after the purchase period and two years after the initial offer date. The gains will be taxed as long-term capital gains, which are typically taxed at a lower rate than ordinary income.

Note that there’s usually a limit to how much you can invest in an ESPP, perhaps up to $25,000 per year or 15% of your salary.

The ESPP could be a great way for you to invest at a discounted rate, if the payroll deductions make sense for your budget. Remember to balance this investment with all of your other investments, and if you work with a financial advisor, discuss how this fits in with the rest of your portfolio.

Reference: CNBC (August 15, 2018) “What you need to know about your employee stock purchase plan”

How Will Aging Parent’s Needs Impact Your Family?

At some point, families have to face the grim reality that they cannot care for a parent without help. Where that care is provided, and how skilled that care is, determines the cost. To have an aide come to the house for an eight hour day may cost about $200 if you use an agency; 24/7 care at home costs about $215,000 per year. A low-level of care in an assisted living facility cost averages around $5,500 to $6,000 a month. If your loved one needs skilled nursing care in a facility, expect the cost to start at around $8,500, depending on what kind of care they require.  People often try to avoid agencies and facilities to save money, but there are significant issues involved since you then become an employer; you need not only to withhold and pay the employer's share of taxes, but also to carry worker's compensation and liability insurance; you need to pay overtime where required; and you may fall victim to a lawsuit from a caregiver who knows the system, knows you are trying to avoid the system to save money, and sues you.  

New Jersey 101.5’s recent article, “Mom or Dad Goes to a Nursing Home: Will You Go Broke?” explains that New Jersey is one of the more expensive areas for long-term care.  California is not exactly cheap either, so the article does give us some valuable issues to discuss. 

Many people think they’ll have to spend their parents’ entire savings or assets, before becoming eligible for some type of government assistance. However, there are four ways to pay for elder care: your own money, long-term care insurance, Medi-Cal or the VA. You should ask an experienced elder law attorney to try and protect as much of their individual assets as possible. The sooner you begin the planning process, the more options you’ll have as far as the type of care and how long you’re able to pay for it.

An elder law attorney will discuss ways to protect the assets of someone going into long-term care. Strategies usually focus on leveraging the Medi-Cal and VA regulations.

In some situations, an elderly parent requires a significant amount of care, and his or her assets must be used to pay for assisted living or a nursing home. That can make things tense. The children may be anticipating inheritances to help with their own retirements, and they could be resentful when that money's being spent on mom’s care.

It's important for families to know that they can ask for help, when facing a crisis with an aging parent. Meet with an elder lawyer to learn about what options are available to help with the cost of care, and what resources exist in your community to help, as you and your parent adjusts to this phase of life.

As many of you know, my firm has a medical social worker on staff to assist families with the very issues discussed in this article because even when a family can afford the cost of care, the need for care and consequences of caring for a loved one create enormous stress.  In my opinion, it is the stress that sometimes kills the caregiver spouse or child before the ill spouse or parent.  Do not underestimate the stress -- it will not do your loved one any good if you die first.

Reference: New Jersey 101.5 (August 20, 2018) “Mom or Dad Goes to a Nursing Home: Will You Go Broke?”

Get These Documents in Order for Your College Student

If you were so busy focusing on the logistics of getting your student off to college, that you didn’t have time to get to the details below, now is the time to get it done. As listed in this article from nj.com, “Don't let your kid go to college without these 10 things,” these are important for your student and you to have in place.

1. Health Insurance Information. Most colleges offer some free health services to students. However, that might not be enough for most healthcare needs, especially for emergencies. Even if the student is on your plan, the coverage may not be enough, if the student goes to college in a different state. The possible need for out-of-network care could get very pricy. Ask your insurance company to calculate how the student’s bills would be covered. You should also take a look at any insurance offered by the school.
2. A Local Providers List. An out-of-state student can get an annual check-up when she’s home for the summer, but some medical needs may not conform to the times when they’re home. Before students get to campus, prepare a list of local care providers who take your insurance.
3. Durable Power of Attorney, Healthcare Proxy & HIPAA Authorization. When your student was a minor child, as the parent, you had the right to receive information about his medical care, and you were authorized to make medical decisions on his behalf. Remember that, when your child reaches the age of majority, you lose those rights. That’s why it’s critical for your student to sign durable power of attorney, healthcare proxy and HIPAA authorization documents. These documents will authorize you to make get access to private information that the university has, and enable you to make financial and healthcare decisions for your student. Ask an estate planning attorney to create these documents for you, and some universities also have their own form of documents to authorize parents to gain access to academic and financial information concerning their children -- just because you pay tuition does not mean anything with respect to privacy rights.  It’s well worth the effort it will take.
4. A Budget. Aside from how to pay tuition, students need to have a plan for other expenses, like textbooks, pizza, and toothpaste. Create an estimated budget with all possible expenses and examine discretionary costs.
5. A Money Back-Up Plan. You know that even with a great prepared budget, there may be times when Sonny calls home asking for money. A slick way to transfer funds to your student is to have a linked bank account. You can easily transfer money from your account to his.
6. A Credit Card. Credit cards in college take some discipline. Help your student find one credit card with a low available balance. She can use the card for a few regular expenses each month, which are accounted for in your budget. You should stress the importance of paying on time, every time. That will help to build a strong credit score. With a solid credit history, after graduation it will help her get an apartment or a car loan.
7. Renter's Insurance. Ask your homeowner’s insurance company about how and if your student’s possessions will be covered by your policy when she moves into a college dorm. Most policies will give coverage but be sure it’s not limited. If it’s not as comprehensive as you’d like, you should consider purchasing an additional renter’s policy, especially if the student is living in an apartment instead of a dorm.
8. An Emergency List. Create a shared online document that has all the student’s essential information, so you can both easily access it. It should include the student’s bank and credit card account numbers and how to contact the bank, if the cards are lost or stolen. You should also have college contact information, like a student ID number and account information for financial aid and student loans.
9. A Local Buddy. If your kid’s going to college far from home, see if you can find a friendly face for her near the college. It could be a Facebook friend from high school who lives near campus. Maybe your sister’s college roommate has a relative there. It’s reassuring to have another responsible adult as an emergency contact, particularly if the parents are many hours away from campus. Introduce your student to this person, even if it’s only over email, and make sure they have each other’s numbers—just in case. Your student may even get a couple of free home-cooked dinners from it. You should also be sure that you have a phone number for your student's roommates or friends—just in case you urgently need to contact your student, but he is not answering your texts.
10. Absentee Ballot. When your student turns 18, she’s a prospective voter. Make sure your student applies for an absentee ballot and exercises her new right!

Your student may want to wave away your concerns about these details, but if an emergency occurs you and your child will be better prepared. Yes, they will be home for Thanksgiving, but a lot can happen between now and then.

Reference: nj.com (August 13, 2018) “Don't let your kid go to college without these 10 things”

Social Security Primer for Widows or Divorced People Who Remarry Late in Life

The Social Security Administration uses many factors to calculate benefit amounts for beneficiaries, and that includes marital status. Those who remarry late in life need to be aware of what could change as a result. This article from Investopedia’s, “How Remarrying Late in Life Impacts SS Benefits” explains the details.

If you’re widowed, you may want to wait until after age 60. If either you or your fiancé is widowed and getting Social Security benefits based on the deceased spouse’s work record, his or her age matters. A surviving spouse who remarries prior to age 60 becomes ineligible to receive benefits on their late spouse’s record. However, after your first anniversary with your new spouse, you become eligible for spousal benefits based on their work record.

Couples in their late 50s with questions about the Social Security implications of their marriage can do the numbers. They can decide whether to delay their marriage to keep a widow’s benefit for longer, or if the spousal benefit from their new union will offer more financial security. As long as you’re married at least nine months before one spouse’s death, the surviving spouse is eligible for spousal benefits based on the second marriage.

A second marriage after divorce. If one or both members of the new couple is divorced, things are a bit trickier, because the Social Security Administration does allow divorced spouses to collect spousal benefits, based upon the work records of an ex-spouse, if the divorced beneficiary meets these criteria:

• The original marriage lasted at least 10 years.
• The beneficiary applying for divorced spousal benefits has remained unmarried.
• The beneficiary applying for divorced spousal benefits has reached at least age 62.
• If you are divorced from an ex who significantly out-earned you and your new fiancé, remarrying stops the ex-spousal benefits you’d otherwise get. Therefore, cohabitating without getting married, sometimes makes more financial sense for some couples.

What if you are receiving Social Security Disability Insurance? Beneficiaries who are receiving Social Security Disability Insurance (SSDI) may have the most difficult calculations when looking at a second marriage, because they’re subject to a family maximum benefit (FMB) calculation that limits the amount of money available for auxiliary benefits, like the dependent child benefit.

Calculate and compare these three amounts to determine FMB:

1. 85% of the worker’s average indexed monthly earnings (AIME).
2. The worker’s primary insurance amount (PIA) based on full retirement age.
3. 150% of the worker’s PIA.

If number three is the highest, the FMB is the higher of number one or two. If number one is the highest of the three, the family maximum benefits is number three.

A late-in-life marriage usually brings smiles to everyone’s faces.  However, before walking down the aisle, make sure that you both understand the impact that your wedded bliss could have on your Social Security benefits. This is also the time to sit down with an estate planning attorney to make sure that your estate plan is updated -- in California, if you remarry after you have completed estate planning documents, and do not amend those documents to address your new marriage, then your new spouse has significant rights to your estate  regardless of your intent.  You also need to review and make sure other necessary documents, like powers of attorney and health care directives, are up to date.

Reference: Investopedia (August 1, 2018) “How Remarrying Late in Life Impacts SS Benefits”

Wealthy Kids Unappreciative? You’re Not Alone

In 2007, the Boston College Center on Wealth and Philanthropy embarked on a four-year study to take a look at the lives of wealthy people and how being affluent has impacted their lives, and those of their children, as reported in the MarketWatch article, “How to leave an inheritance that doesn’t tear your family apart.”

Participants were asked about how their money helps or hinders their deepest aspirations for themselves and their children. The study found that participants with children worried less about making more money and impacting the world through philanthropy than “to be a good parent.”

Most parents don’t want to discuss money with their kids, and understandably so. It’s a daunting conversation, and can invite the question: “How much inheritance can I expect?”

However, when parents don’t communicate their hopes and dreams, the chances of a successful outcome aren’t great. A 20-year study at The Williams Group revealed the reasons why there is a 70% failure rate among affluent families, where family assets dissipate, and family relationships disintegrate. The research found that it’s connected to a family’s ability to have meaningful, productive and honest discussions about the effect of money and the purpose of the wealth.

Some well-intentioned parents will respond to their children’s question of “how much and when?” by creating a structure that does the protecting for them. They establish trusts that distribute assets to their children at age-appropriate milestones. Or they add a term in their will that says, “if there is any fighting, it all goes to charity.”

In some families, the parents don’t tell the children what their inheritance will be, thinking that not knowing will ensure that the kids don’t lose their motivation to achieve in their own right. However, children who are left in the dark may have other questions, like could they count on their parents if they wanted to start a business of their own, or would they be cut off if they ran into trouble.

Family conversations about wealth, work ethics and social responsibility that begin when children are young and continue over time, changing as their children mature, is far more likely to lead to a family that understands and respects the origins of the family’s wealth and the responsibility that comes with it.  Some family meetings should be facilitated by attorneys, wealth managers, CPAs and/or family therapists familiar with challenges of families with wealth to better ensure that children and grandchildren will be prepared to be good stewards of their family's wealth. 

Moreover, the parents and grandparents should be engaged and significantly in creating the estate plan and monitoring its evolution over the years and decades, to ensure that it reflects the values of the older generations, and contains the thinking and guidelines of the people who created the family wealth -- not simply the guidelines and thinking of the estate planning attorney whose computer generated the estate planning documents.  

Reference: MarketWatch (February 21, 2018) “How to leave an inheritance that doesn’t tear your family apart”