Transition Planning: Include the Whole Family



With more than $68 trillion in assets set to change hands over the next 25 years, financial advisors and their clients are sitting on the precipice of the greatest transfer of wealth in history.

Financial advisors are in a unique position to help their clients engage in meaningful conversations regarding the financial situation of aging parents and the impact that their clients wish that their wealth will have on the generation that follows. Whether your clients are the children of aging parents or the parents themselves, these conversations are as integral to preserving your clients’ wealth as the financial planning that you have assisted them with.

Key Takeaways

  • As the Baby Boomer generation enters retirement, financial advisors must begin to think about legacy and estate planning as their clients enter older age.
  • Transfers of wealth to younger generations should be addressed with an eye toward tax minimization, ensuring assets end up where intended, and that family issues are minded.
  • In addition to passing on assets, aging clients should consider long-term care insurance to help defray the costs of nursing homes and end-of-life care.
  • When Baby Boomers pass, the wealth they transfer to other generations is known as The Great Wealth Transfer.
  • The Great Wealth Transfer will be the largest redistribution of wealth in modern history.

Your Role as an Advisor

While some of the discussions below might seem outside of a financial advisor’s typical role, it is crucial for you to help your clients’ families consider what the future may hold. As an impartial third party and financial expert, you offer an invaluable perspective and can help your clients understand how other families have handled these issues.

Assisting families with the transition of wealth and related financial issues is a great service to offer to your clients. Your knowledge and perspective can make you an excellent facilitator of these often-difficult family discussions and can help you cultivate relationships with the next generation of the family.

From a business perspective—especially if the parents are your clients—forward planning with multiple stakeholders may also be the key to a longer, intergenerational relationship. Proactively engaging with clients regarding the transfer of wealth is key to building trust and genuinely helping families cope with this delicate and difficult issue. Some important considerations are listed below.

What Are the Parents’ Wishes?

While every family situation is different, the first step to consider is where the parents expect their money to go. Ideally, they’ll set parameters for distributions when they’re gone through a will, other estate documents, and up-to-date beneficiary documents. If your clients do not have a will and other estate paperwork in place, they’re not alone: a 2021 Gallup poll found that only 46% of American adults have a will.

Without paperwork in place, it’s difficult for families to determine what a parent’s wishes were for their estate. While a will should be drafted by a trust and estate attorney, you should be aware of the wishes of your clients and, if possible, encourage them to develop a plan for their estate that makes sense for their situation and to keep it updated regularly, especially after significant life events. 

Ideally, a client’s children and other beneficiaries should be aware of these documents and, if the client is comfortable with such a discussion, where the money will be going. Even in the presence of ironclad estate documents, nasty surprises in this area in the wake of a death can often result in damaged relationships and expensive litigation.

76%

Americans over the age of 65 who have a will in place.

Consider Family Dynamics

Talking about death is never easy, though many people may prefer it over talking about their wealth. A Merrill Lynch/Age Wave study found that 61% of women surveyed would rather talk about their own death than their finances.

As a financial advisor, it’s your responsibility to initiate the conversation. Think about your previous exchanges with the family: do they communicate openly about their wealth? If the answer is no, then one of your goals as an advisor should be to help facilitate these types of discussions in a way that is comfortable for all involved. This may take some time, and that’s completely normal.

Are the parents closer with one child in particular? Does one child tend to take the lead? It’s important for families to decide who will help the parents with financial issues as they age and what everyone’s role will be. Consider issues such as a power of attorney (POA) or backup contact on financial decisions should the parents be incapacitated or otherwise unable to manage their own affairs. If there is not a child or family member who is prepared to assume this role, you can help the parents find an appropriate outside professional to assist.

Elder financial abuse is rampant. While many scams are perpetrated by outsiders, abuse from family members or caregivers is shockingly common. An unfortunate reality is that you need to keep this possibility in the back of your mind and report any abuse you witness to the proper authorities.

Is There an Inventory of Assets?

Ideally, the parents have a handle on everything they own. Perhaps they use an online financial organizer or save statements from various investment, bank, and retirement accounts. This list should include:

  • Real estate: both primary residence and any investment or recreational properties
  • Retirement accounts such as IRAs, annuities, and 401(k)s
  • Insurance policies
  • Pension benefits
  • Interest in a business
  • Social Security or Railroad Retirement benefits
  • Art or collectibles
  • Checking and savings accounts
  • The location of safety deposit boxes

Your priority should be ensuring that not only the parents, but appropriate family members as well, are “in the loop” regarding the parents’ assets. This is especially critical if there is a possibility that the parents will lose their mental faculties in the future.

Can the Parents Provide for Their Own Retirement?

With a shifting landscape around pensions and government benefits, many aren’t even sure if they can provide for themselves in retirement. On average, one-third of retirement-aged Americans have less than $10,000 saved.

While some assistance programs help to close that gap, many children are forced to step in and provide financial assistance for their parents as they age. It’s important for children and parents to design a financial plan that accommodates each others’ expectations.

15%

The amount of living expenses related to healthcare expenses in retirement.

Fidelity advises those planning for retirement to assume they will spend between 55-and-80% of their current income in their retirement years. Depending on whether or not the person or persons retiring will lead an active lifestyle or travel, that percentage guideline can rise to 90%, 100%, or more.

Long-Term and End-of-Life Care

While Medicare can assist with many health expenses, retirees have to cover about 35% of their medical expenses on average. That amounts to more than $18,000 per year, including end-of-life care, according to the National Bureau of Economic Research.

Do the parents have long-term care insurance? If they do not, is it reasonable for them to purchase it in terms of their age, health, and cost? Otherwise, are they in a position to self-insure? While planning for retirement expenses can be a daunting experience, it’s important to have a discussion around medical costs long before the need is forced upon a family.

What Is a Good Retirement Income?

According to both Fidelity and the AARP, you should aim to spend less than 80% of your income prior to leaving the workforce. This can increase if you plan on travel and living larger than you were before retirement. Unexpected major healthcare expenses can also inflate this guideline.

What Does the Average Retired Person Live on per Month?

The average retired person spends an average of $45,756 a year which equals around $3,800 a month. Unsurprisingly, the three largest spending categories, in order, are housing, transportation, and health care.

What Is the Biggest Expense in Retirement?

The single biggest expense in retirement is housing. It does not differentiate between renting and owning, as each has its own set of complications. Some may find owning easier as there is the security of ownership and the possibility of increasing property value, while some enjoy the less permanent structure of renting, which may allow for more frequent and extended travel.

The Bottom Line

Discussing end-of-life proceedings is almost always a difficult discussion, which is why many retirees forgo it altogether. Your role as a financial advisor is to provide a comfortable and non-judgmental atmosphere where you can have frank but productive discussions about what will be set in motion when the inevitable occurs.



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