Why Baby Boomers Should Worry about their Parents' Estate Plans
Recent years have been difficult ones for the leading edge of Baby Boomers. The generation that once declared it couldn't trust anyone over 30 is turning 50, well into middle age and within striking distance of retirement.
Although the oldest Boomers won't begin retiring until 2011, they should
already be building a solid foundation for their retirement fund. Yet, as
a whole, Boomers are lagging far behind in this important goal.
Baby Boomerang
Several factors are to blame. One is the fact that most Boomers are parents
supporting minor children. Fully 60 percent of Boomers in the 25 to 40 age
group have children under 18 in the home. Because many Boomers delayed childbearing
until their 30s and even 40s, they will be financing college education when
they should be saving for retirement.
Compounding their financial squeeze is the Baby Boomerang. Boomers' adult
children, who should be out on their own, are flocking back to a crowded nest.
Even when employed, Boomer children seem willing to live at home indefinitely
in a trend that reverses the behavior of the previous two generations.
Big Spenders
Other Boomer traits may also be culprits. Legendary as the Me-First Generation, Boomers have been prodigious consumers and the spending spree continues, although a greater share of their income is now going for the necessities of raising children. Because Boomers don't shirk from using credit, their spending habits have racked up a frightening debt load, leaving them with little discretionary money to allocate to their retirement fund.
Counting on Mom and Dad
Yet another reason for Boomers' failure to save for retirement was revealed by American Demographics Magazine. It reported that Baby Boomers are putting off saving for their retirement because they believe the legacy they'll receive from their parents will fill the holes in their retirement fund.
They could be right - a lot of inheritance is at stake. Studies show that the Boomers’ parents’ generation will pass on an inheritance worth more than $10.4 trillion. Roughly speaking, that's 115 million bequests averaging about $90,167 each.
But what if Mom and Dad don't do their estate planning properly?
Clearly, several generations may pay the price.
The Risks to Boomers' Inheritance
Boomers have every reason to be concerned about Mom and Dad's legacy. Between taxes, legal fees, health-care costs and other threats, there's no guarantee that they will see much of their parents' estates. That's why for Boomers and their parents alike, the first line of defense is effective planning.
Only proper planning will minimize the impact of estate taxes. Proper planning doubles the amount a married couple can pass on estate-tax free. Failure to plan exposes the estate to taxes that begin at 37 percent. Without careful planning, Boomers could watch their parents' estates drained by costly long-term care. Nursing home care in the U.S. can range from $2,000 to over $6,000 per month. Several strategies can protect the estate without sacrificing quality health care.
Avoiding Probate
Nationally, probate costs Americans over $2 billion, averaging between 5 to 10 percent of the gross value of the estate and further depleting the legacy intended for loved ones. Probate can be avoided using the right strategies. But if parents dispose of their estate with a will -- or die without any estate plan at all -- probate will be necessary.
Getting Help
Although Boomers lead the ranks of the do-it-yourselfers, estate planning is no field for amateurs. Estate planning strategies available are those that enable older Americans to make gifts to their loved ones while they're alive to see them enjoy it; reduce estate taxes; avoid probate; and protect assets from creditors and the high cost of health care. An attorney who concentrates on these strategies will be best able to create an estate plan that addresses the needs of each generation involved.
Finally, your last name doesn't need to be Rockefeller or Forbes to make planning worth your while. Even Americans with small estates falling well below the estate tax limits will benefit from sound planning that provides protection from guardianship proceedings, avoids probate, and protects the assets they own from the financial drain of health care costs.
This Academy Report reflects the opinion of the American Academy of Estate Planning Attorneys. It is based on our understanding of national trends and procedures, and is intended only as a simple overview of the basic estate planning issues. We recommend you do not base your own estate planning on the contents of this Academy Report alone. Review your estate planning goals with a qualified estate planning attorney.
Legal Disclaimer
This information has been provided for informational purposes only. It does
not constitute legal advice. The receipt of this information does not establish
an attorney-client privilege. Proper legal advice can only be given upon consideration
of all the relevant facts and laws. Therefore you should not act upon any
of the information contained herein without seeking appropriate legal counsel.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
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