What is Intergenerational Planning?

You may have heard financial professionals talking about “Intergenerational Planning”

And just what is “ Intergenerational Planning”? It has nothing to do with Startrek, that’s “Intergalactic Planning” Intergenerational Planning is planning between children and their parents regarding the transfer of assets from one generation to the next. But I don’t mean just the transfer of tangible assets such as cash, stock and real estate but the transfer of intangible assets as well, such as their values and beliefs. I will talk more about that later.

Recent studies have concluded that in the next several years, the Greatest Generation( those who were adults during WWII ) will transfer more than $25 Trillion dollars to their Baby Boomer children. This is more wealth than has ever passed from one generation to the next in the history of the world. But how many families have actually discussed this important financial event in a logical, organized fashion.

One of my clients was a retired orthopedic surgeon. About 15 years ago his mother died and willed her shoreline property to him. At the same time she gave her other son what she considered an equal amount of investments and cash. She never talked to either son about her plans. Over the years the shoreline property has appreciated dramatically to a value over a million dollars. And because of the difficulties in the stock market and the recently low returns on savings the second son’s inheritance is worth significantly less. As a result neither brother has talked to each other in several years. Now they only communicate through their lawyers.

These situations happen all the time because there are two major gaps that seem to get in the way between parents and their children. These two gaps are the Generation Gap and the Communication Gap. The Generation Gap shows up very often when baby boomers try to open a conversation about money with their parents. The parents often consider talking about money and assets with their children a totally taboo topic. They never talked to their own parents about money and they don’t intend for their children to be prying into their financial affairs.

But Intergenerational Planning is not just about planning for cash, investments and real estate. There are other areas to discuss that are equally important to the parents if not more important.

The transfer of values and life lessons need to be considered. What values do parents want their children, grandchildren and great grandchildren to carry on? And what life lessons have they learned that their children can learn from?

Another area to discuss are any individual instructions and wishes that the parents want carried out. Certainly a living will and health care proxy must be discussed. Which child do they want to make health care decisions for them if they can’t make them themselves. Under what conditions do they want to be kept alive and for how long.

And it is a big mistake to force children to come to a consensus regarding health care matters. That can cause irreparable damage between them. One child, who I will call the Alpha child, should be given that task. I’ll discuss the Alpha child later.

But in addition to these health care issues there are other wishes that parents may want to be communicated. Are their certain charities that they want to favor? Do they want to be remembered in a certain way at their church or Synagogue?

In addition parents must communicate their wishes regarding personal possessions of emotional value to their children. This can often be done through a codicil or letter attached to the will. Is there a certain granddaughter that has always admired a certain piece of jewelry. Or does one son have a particular interest in a well preserved antique car?

Most baby boomers and their parents are not having in-depth conversations about any of these issues.

And why don’t these conversations occur? Well first of all we are not comfortable at all in discussing death and inheritance, especially with our parents. A boomer child who brings up the subject may be viewed as a golddigger by their parents. Why are they bringing that up? Are they trying to get an advantage over their brothers and sisters?

And when parents bring it up the possibility of their death, their children often say “ Oh mom, Dad you are going to live a long time. We don’t need to talk about that now.”

There is also often a fear of conflict. Parents and their children are reluctant to bring up sensitive issues because they fear it may create conflict in the family.

For example one of my retired clients approached me at an annual investment review and said, “ Bob’ we’d like to change our estate plan but we are reluctant to bring up the subject with our son. He is the trustee of our trusts for himself and his brother and sister. But we are concerned about his wife’s influence on him. We don’t really get along with her very well and she’s not even talking to our daughter. How do we make changes and not hurt his feelings?

In addition to concerns about hurting their childrens’ feelings parents are often very concerned about treating each of their children fairly. Is it really fair to give each of your children the same amount? Especially if one of them has a significantly great need for financial help or has been very helpful to you as you got older.

One of my elderly clients recently passed away. When we talked about her assets in meetings over the years she constantly reminded me that she was very concerned about treating each of her children fairly. So she left her assets to each of them equally.

Two of her children lived out of state and were both in good shape financially. A third child, her only daughter, lived near by and had spent several years taking care of her mother when her health started to fail. But her mother had not favored her in any way. The family had never had any conversation regarding splitting of thr assets. And as a result the daughter has become very resentful towards her two brothers.

What those families have found that are willing to open the lines of communication between parents and children are the following:

  1. Postponing uncomfortable discussions does not eliminate the need to deal with issues sooner or later.
  2. Fears and concerns may prove to be exaggerated or unfounded.
  3. Family members in conflict may welcome the opportunity for discussion or resolution.
  4. Avoiding the potential for conflict now may result in greater conflict later.

There are specific steps that I suggest you take to ensure that your intergenerational planning goes smoothly

  1. Enlist the help of your Alpha child. Who is the Alpha child? That is the child that you can comfortably talk to about all the issues related to your plans. It is the child who seems to have the most common sense and is respected by his/her siblings. It is the child who feels that it is their responsibility to start the conversation amongst the family.
  2. Seek out help from one of your trusted advisors. What advisor can you talk most comfortably with? What advisor is sensitive enough to talk with you and you children about sensitive issues. Is it your investment advisor, your lawyer, your CPA?
  3. Ask you trusted advisor and your alpha child to schedule a family meeting. I suggest that spouses and grandchildren not be invited. This not a social affair.
  4. Gather together all the important information about you and your spouse and put it in a notebook. Or consider one of the published guides to personal organization ((hold one up)
  5. Make sure you review this notebook with your spouse. Include information about any accounts you have online (with passwords). Make sure both of you know what is in safe deposit boxes and what is hidden around the house.

A few years ago I was on the phone with a client whose mother had passed . He was cleaning up her house to prepare it for sale. In the process of going through the house he found over $30,000 in cash hidden in closets, cabinets and various locations around the house. His mother had never told him that this cash was there and he could have easily overlooked it if he hadn’t been careful. The new owner would have been pleasantly surprised when he found all the cash in the ho

  1. Select executors and trustees carefully. Don’t just pick a child because you think your child should do the job. Make sure they understand what the executor’s role is before they take it on.

And don’t name all your children as trustees. Select the Alpha child and consider a trust company or financial institution as a successor trustee or administrator of the trust. Keeping track of trust assets can be labor intensive and time consuming and your children may need help. Again make sure they understand what the trustee’s responsibility is.

  1. Be especially careful in planning regarding your real estate and other valuable illiquid assets. Many families break up around the decision to keep the families beach front property in Rhode island or to sell it.
Are Your Children Prepared to Manage Your Money?

Are Your Children Prepared to Manage Your Money?

Many boomers who have been fortunate (or skilled) enough to build up a sizeable investment portfolio are concerned that their children are not prepared to manage it. “What will happen to our money when our children inherit it?” is a very important question.

The Investment News has reported that over the next 30 years, an epic $30 trillion will be passed down from baby boomers to their heirs. In their book “Preparing Heirs” Roy Williams and Vic Preisser describe their survey of 3250 wealthy families that transferred their wealth to their adult children. They discovered that 70% of those transfers failed. In other words 70% the heirs lost control of the assets ( spent it all, invested poorly or lost control of a business)

And why did this happen? Was it poor financial skills, lack of investment experience or business savvy that caused the failure? From their study Williams and Preisser concluded that “The origins of the 70% failure rate in estate transitions lie within the family itself.” What does this mean?

In his brilliant little book, “Wealth in Families” Charles W. Collier, Harvard University’s very successful senior philanthropic adviser, explains this phenomenon in more detail. He reports that it is not the failure of training in financial skills that causes this breakdown in the transfer of wealth but the failure of the family itself. “”Money casts a spell-and it can be for good. It is important, indeed critical for families to think seriously about the meaning of their financial wealth, the messages they send to their children about money, and the example they set by their own uses of their resources”

“ To undertake effective succession planning, you may want to define a family vision and mission, create a structure for decision making appropriate to your family, foster open communication and encourage the growth and development of your family members”

Successful wealth transfer is not strictly about teaching good money management skills. It is about creating an environment in which children learn that they are listened to and have an important role in establishing the family’s mission, that money is a tool to express the family’s core values and principles.

Families need to discuss what is important to them. They need to share what they believe is the meaning and purpose of the family’s financial wealth.

This is certainly not an easy task for most families. It is much easier to enroll your children in a good investment or accounting class. But it is so much more valuable to create an environment in which the family can discuss how the family’s wealth was created, what is important to them and how money can be used to further that mission.

It Takes a Village to Serve Elders

Mom's 90th Birthday  

Many seniors want to do everything they can to stay in their homes as they get older. But often they need help to handle various responsibilities including getting to medical appointments, shopping, socializing with friends, preparing meals, and managing things around the house.

They usually have two choices to get these services. First they can rely on family members to help them. This is often difficult if their children are working or are not in the immediate area. Second they can hire aides to come to the home. But this can be very expensive. Aides often cost $20 an hour or more and many seniors just can’t afford them.

But a new alternative is emerging. It is a volunteer nonprofit organization created by a community to allow neighbors to help other neighbors. Each senior pays a fee to become part of the network. Fees vary by community and services offered . They range from $175 to $900 a year. Community members volunteer to provide most of the services. Discounted fees are available to people with lower incomes.

Beacon Hill in Boston was probably one of the first neighborhoods to offer such a program. Beacon Hill Village was founded in 2001.( www.beaconhillvillage.org) in 2001

A group of friends in the neighborhood started to talk. What if they banded together and created a network of like-minded people who were aging, but who knew they didn’t want to go to a nursing home? They could help one another when they needed it, recommend plumbers and doctors and home-care aides to each other, and schedule social events so no one would be isolated at home. The network would mean they wouldn’t have to be a burden to their children, and they wouldn’t have to go to a nursing home, either.

Services offered to members include:

  • Referrals to discounted, vetted providers for everything from dog walkers to plumbers
  • A volunteer to assist you in your home or around town
  • Geriatric care management for you or your family members anywhere in the US
  • Rides home from a medical procedure that are required by the hospital/doctor
  • Personalized grocery shopping—we will drive you or deliver groceries to your home
  • Discounts to all providers: Electricians, plumbers, organizers, personal trainers, massage therapists, homecare specialists

A similar program was started on Cape Cod in 2011. It is called Nauset Neighbors (www.nausetneighbors.org) that states “One call does it all”. It is staffed by 320 volunteers and serves over 260 seniors in the lower Cape. Volunteers provide transportation, light home maintenance, technical support, and other support tasks

There are now eight open villages in Massachusetts. Each village is unique to its area and resources.  Nauset Neighbors is part of the Village to Village Network (http://www.vtvnetwork.org/) which now is composed of 190 open villages with another 185 in development around the country.

Do You Have A Digital Estate Plan?

Digital Estate PlanI’m sure you are comfortable that your estate plan is up to date. But have you reviewed your digital estate plan? What is a digital estate plan? It’s a plan for the disposition of all your  internet accounts once you are deceased.

Experts have estimated that the average adult with access to the internet has more than 25 internet accounts! In the past, we kept albums full of snapshots, vinyl records and shoeboxes full of correspondence. Now our photos are all on Flickr and IPhoto, our music is downloaded from ITunes and our correspondence is email via Yahoo or Google.

And probably more important than that, a lot of your bank and investment accounts may be entirely online.!

And what happens if you die? Who has access to these internet accounts? And if they want those accounts taken off the internet how do they do it? You may discover that it is more difficult than you think for family members to access your accounts or erase them from the internet.

The family of Ricky Rash, a 15 year old who committed suicide in 2011, discovered how difficult it was to recover information from their deceased son’s internet account. In an effort to understand why he had taken his own life, they requested but were refused access to his Facebook account. Facebook claimed that according to the Stored Communications Act of 1986 – the federal law that governs the protection of a person’s electronic data – even the account of a minor is protected from access by his parents or anyone else. Other sites and providers interpret the legislation this way, making access all but impossible.

Up until recently there were only five states that have taken any steps to help recover the internet data of a deceased person—Indiana, Idaho and Oklahoma legislation covers social media and blogging accounts, while Connecticut and Rhode Island legislation covers only email.

Delaware has become the first and only state in the US to enact a law that ensures families’ rights to access the digital assets of loved ones during incapacitation or after death.

What does this mean for you? It is critical that you create a digital estate plan. The listing of internet accounts needs to be more comprehensive than I originally recommended. Information must include:

  • the name of the account
  • the contents of the account
  • the URL address
  • username
  • password
  • instructions for the disposition of the account including the person to oversee such disposition.

I have created a new spreadsheet to gather this information. Email me at rmauterstock@gmail.com and I will send it to you.

There is a whole new industry that has been created to service your  digital estate including passwordbox.com, a new digital estate planning service. Your clients can create an account and then enter their user names, passwords and wishes for each of their digital assets. They can specify an heir for each account; Passwordbox will provide heirs with information after the account holder’s death is verified.

There are also online memorial services to celebrate your life, including www.Bcelebrated.com, and www.MyWonderfulLife.com. These services enable your clients to create their own memorials before they pass away. Facebook and Twitter also offer these services for family members.

The importance of having a digital estate plan will increase as more and more of our assets (and access to assets) are online. Gradually laws will evolve to give family members access to deceased loved ones’ accounts. It is important to prepare yourself for the disposition of their digital assets now so that family members will not be unpleasantly surprised when they attempt to uncover them.

If you want to explore digital estate planning in more detail read Evan Carroll’s excellent book Your Digital Afterlife or read “Death in the Digital Era: A Useful Guide” available from the http://www.digitaldustblog.com

©2013 Robert Mauterstock

Have You Discussed Your Estate Plan With Your Children?

siblingsAs a financial advisor to families for over 30 years, one of the most difficult conversations I had with clients was convincing them to discuss their estate plans with their children. They would often tell me. “The kids will work it out after we are gone” This was a recipe for disaster, setting the children up for messy battles that could tear a family apart.

One of my clients worked for his father in his waste management company starting when he was in high school. His older and younger brother also worked with him to support his dad’s business. When Dad passed away, he stipulated in his will that the oldest brother would inherit the business expecting my client and his younger brother to go to work for him.

Unfortunately it didn’t work out that way. My client felt like he had been cheated out of his future. He never spoke to his older brother again and started his own waste management business which became very successful.

It certainly seems easier to let our executors share with our family our intentions after we are gone. But it is a grave mistake. It is our responsibility to share with our children what our intentions and desires are before we die.

This is especially true if we own vacation real estate. One of my clients has a beautiful cottage on a lake in New Hampshire. His children and grandchildren have been going there since they were born. I asked him what his plans were for the cottage after he was gone. He replied, “ I don’t know. I will let the kids decide that”

I asked him what he thought would happen if two of his three children wanted to keep the cottage but the third couldn’t afford to support it. How would they decide what to do with his share? I informed him that this type of situation would do nothing but create friction within the family that could have horrendous ramifications. He needed to meet with his children and develop a strategy that they all could live with.

Fortunately he agreed with me and had a family meeting that was very successful, making it very clear to the family how the cottage would be handled and avoiding any future conflict.

Will You Go to a Nursing Home?

images-1In a recent AARP study, nearly 75% of adults 45 and older said they strongly desire to stay in their current home as long as possible if they have a chronic illness or need long term care. Many baby boomers state that they would never cross the threshold of a traditional nursing home. But what happens if a spouse is not able to take care of you or you can no longer get around your home?

Many assisted living residences have replaced nursing homes to provide care to those who are chronically ill or have lost their mental capacity. But Increasing numbers of baby boomers will seek out new alternatives for independent living where care can be provided.

Intentional communities for philosophical, religious, and lifestyle groups are emerging. Wikipedia describes an intentional community as “a planned residential community designed from the start to have a high degree of social cohesion and teamwork. The members of an intentional community typically hold a common social, political, religious, or spiritual vision and often follow an alternative lifestyle. They typically share responsibilities and resources.”

Alex Mawhinney (jamlll@charter.net) , a developer of retirement communities for over 25 years, reports that “intentional elder neighborhoods are becoming the new paradigm for elder living.” He states that boomers will no longer be interested in “the older generation of elder living options that were available to our parents that follows this model:

  • Age in place — in a home not designed for aging in place, and eventually aging alone
  • Move in with children or other relatives
  • Move to an institution — and pay dearly for care delivered by strangers, under their rules and according to their schedules. The institution might be a nursing home, an assisted living facility, a rest home, a retirement hotel, or a continuing care retirement community with multiple levels of care.

There are SOTELs (service-oriented technically enhanced living—like an upscale Embassy Suites); ecovillages; senior cohousing; and the new lifestyle communities like those being developed by Canyon Ranch.These elder neighborhoods are taking many different forms.

The common traits of these new alternatives are that they are:

  • Human scaled (not large and impersonal)
  • Relationship-based
  • resident managed/centered, with an overlay of lifelong learning, later-life spirituality
  • giving back to the community

Dr. Bill Thomas, came up with an alternative that he describes as “Green Houses”  in the 1990s,  based on “a really radical idea: Let’s abolish the nursing home.”

Thomas, a geriatrician from upstate New York, had patients then who lived in nursing homes, and he realized “that the medicines I was prescribing were not treating the true source of suffering, which was loneliness.”

He also realized that traditional nursing homes were going to have to be replaced soon anyway. “Most of them were built in the 1960s and ’70s, and, you know, their time is done. So I got to asking the question: What comes next?”

What came next were the first Green House homes, which opened in Tupelo, Miss., in 2004. Now, with 148 Green House homes nationwide, there’s enough research to get an idea of how they’re working.

And they’re doing pretty well.

Each resident has their own private room. There are no strict schedules at Green House homes, so while many of the residents gather at the table for lunch, they can have their meals sent to their room. David Farrell, director of the Green House Project nationwide, explains that those private rooms aren’t a luxury — they’re safer than a traditional nursing home, where two or even three people might share a room and also share a bathroom with the two or three people in the room next door.

Research also shows that Green House residents maintain their independence longer than residents of traditional nursing homes, where hallways are long and schedules are tight. “So people really are kind of relegated to a wheelchair in order to efficiently move them around,” Farrell says, “and they quickly lose their ability to walk.”

This program of private rooms and personal service sounds like it could be much more expensive than the traditional nursing home, but Green House home costs have shown to be about the median for nursing homes nationally.

There are now about 150 more Green House homes in development, where residents will be able to enjoy the privacy of their own rooms or the company of the communal table. It’ll be their choice.

Have You Had the Money Conversation With Your Children?

imagesWhat is your relationship with money? Do you completely ignore it and let your spouse handle it? Or are you a saver, keeping track of every penny you are able to add to your savings account? Are you a risk taker, making big bets on the next big thing, or a risk avoider, not even sure if you can trust the banks to protect your money? Do you associate spending money and buying things with pleasure or pain?

Why do I ask you these questions? Because whether you know it or not, your relationship and attitude about money has influenced your children and how they relate to money. It is important to begin to understand this connection when you start talking to them about their finances and your own.

As she has done many times in the past, my daughter taught me an important lesson five years ago. She asked me, “Dad, you’re a financial planner, and every day you are talking to your clients about money. How come you have never talked to me about it?” I was stunned, speechless. I realized that I had never shared our financial goals with her and had never inquired about her own financial situation.

From that day forward we have had an annual financial planning meeting around the Christmas holiday. I share with her what our financial goals are and I ask her what her plans are for the next three to five years. It is a way for each of us to keep our intentions clear and it has been a wonderful tool in cementing our relationship.

At first I had difficulty sharing with her what our income was and how much we had saved for retirement, but after a while, it became much easier. After all, I really didn’t have anything to hide. In the same way I had to be careful not to judge her for the amount of credit card debt she had or the amount she had saved.

As each year has progressed, we have become more confident is sharing financial information with each other. She has become more willing to ask me questions about her future and get my input on the best course of action for her to take. And to my constant amazement, her financial situation has improved significantly each year. At this point her income is much higher and she has saved much more than I had at her age. A true miracle!

I believe it is very valuable to have this money conversation with each of your children every year. I suggest strongly that you set a specific date to have a financial meeting with them. Your daughter might expect the meeting on the first day of summer, your son on Father’s Day. In this way they will know and look forward to this event.

The first few times may seem uncomfortable, but eventually you will find that you feel much closer and are more honest with each other. You may even find that you have a clearer picture of your own financial goals.