Increasing Longevity and Its Effect on Estate Planning and Retirement Planning
In the 1970s, Logan’s Run debuted; it was a movie showing a solution to a society’s problems with overcrowding was to end each person’s life at 30 years of age. Not only is this world not the world of Logan’s, no one knows how long she or he will live.
So, what must this do with estate, family business, and asset protection planning? Glad you asked. Read on.
Not long ago, our life spans were shorter. Much shorter. The overriding concerns for most people was passing away before all of their estate planning affairs were in order, before children were old enough to care for themselves, and before the business they started and grew was ready to pass to the next generation.
Today people live longer. Much longer. Longer than they ever anticipated. In my 20s, in law school, students learned about a principle of law called the “Fertile Octogenarian” and everyone chuckled about a person having a child at eighty years of age. Well, just in the time from the 1970s to date, less than 50 years, now it is routine for folks to be fairly healthy and enjoying life well into their 80s. When centenarians – the 100 and over club – are asked if they thought they would live for many decades after they retired, I wonder how many say yes. Every week I hear at least one person tell me they don’t want to live “that long.” The assumption appears to be that the person will not enjoy life at what the person perceives as a very advanced age.
From two standpoints, asset protection and quality of life, not planning for a long life can have disastrous consequences that were rarely seen until recently. Avoiding these consequences takes an integrated approach not just to retirement but also to longevity planning. Longevity planning combines asset, health, housing, and personal autonomy for today’s planning. Longevity planning and estate planning should be two sides of the same coin.
The challenges that can arise from living much longer require a team approach. The team members may vary depending on your objectives. Some team members may have credentials as a certified financial planner, CPA, retirement planner, geriatric manager who may have a background as an RN, MD, or other health care provider. If your business includes commercial real estate, your planning team might include a professional property manager.
Imagine this example: George and Sally marry and have two children, Jim and Jenna, while they are in their 20s. In their 40s, they establish a comprehensive incapacity and estate plan comprising a will, a revocable living trust, financial and medical durable powers of attorney, and an advance directive about end of life decisions. In their early 50s, George and Sally divorce. One year later George remarries a woman 10 years younger than him. George dies at 70, leaving all of his property in trust to his second spouse, and then to Jim and Jenna after his second spouse’s death. So far it seems like there was good planning done by George. Now what follows is the rest of the story.
George’s second spouse lives a long life; she dies when Jim and Jenna are in their mid-70s. No inheritance from George until decades have passed. Meanwhile, Sally uses up all of her retirement savings by the time she is 85. Sally lives until age 95. Sally had no planning. The lack of planning led to Jim and Jenna paying for their mother’s long-term care and health care expenses from their retirement assets which were decreased well below what they needed for their own care. Sally did not qualify for Medicaid.
When they first began to plan, Jim and Jenna anticipated inheriting a substantial sum from their parents that would then be part of their own retirement assets. That did not happen. Their depleted retirement funds may not last them until death.
The situation described above is becoming more common. The U.S. Census Bureau tells us the fastest-growing age group among seniors is 85 to 94, which has increased by 30 percent in just a little over the last ten years. According to the Social Security Administration, a 65-year-old man now has a life expectancy of 84 and a 65-year-old woman has a life expectancy of nearly 87. A 65-year old couple has almost a 50% chance one of them will live to 95. After that sinks in, please read on.
This means your retirement plan that assumes you will need 15 years’ worth of assets or income faces the high probability it will fall way short of your actual requirements. With rare exception, the longer you live, the greater your annual expenses regarding health and long-term care will become. In addition, standard wills and trusts rarely work as intended when children themselves reach retirement age or predecease their parents. Some children will not receive financial help when they most need it. Other children may be forced to supplement their long-lived parents’ retirement. And, these challenges become amplified for a blended family, which is increasingly more common.
Because longevity is becoming the rule as opposed to the exception, retirement and estate planning must assume you will live a long life, much longer than you would expect.
What does all of this mean for you? It means planning must include a person’s longevity and estate planning. That is planning that combines legal and financial protections to maximize your assets for your healthcare, housing, and personal autonomy planning.
I want you to preserve your quality of life for as long as possible. To do this effectively, it is highly preferable to start with the advice of an estate planning attorney such as those we have at Stross Law Firm, P.A. Contact us to schedule your complimentary initial consultation today!
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