The Great Wealth Transfer: Why We All Need Estate Planning

The Great Wealth Transfer: Why We All Need Estate Planning

We’re facing some peculiar challenges at the moment, aren’t we? And I don’t know about you, but it’s made me think about my own mortality and some of the challenges that go hand in hand with it. It occurred to me that maybe what we’re living through right now might be reason enough to check that our plans for the future are really as comprehensive as they need to be. As grim as it is to look at some of the harder facts of life, I don’t hear people talking about estate planning nearly enough.

America is Facing Multiple Health Crises

So with that in mind, I started looking at the stats. Did you know, the average life expectancy of an American man is 76.2, but his wife may well outlive him – an American female’s life expectancy is 81.2. The CDC website says that approximately three million Americans die every year. (Don’t worry – over 3.5 million are born each year, so we run no risk of extinction just yet.)

Those figures include deaths from all diseases, accidents and natural causes. But the leading causes of death are heart disease (responsible for over 650,000 deaths each year) and cancer (taking nearly 600,000 annually).

2020 is presenting its unique challenges to life in the USA. It’s absolutely terrible that COVID-19 has taken the lives of over 200,000 Americans this year. When you add that figure to the number that will succumb to heart disease or cancer, we’ll lose close to 1.5 million of our compatriots over the course of 2020.

Now, these figures have a huge impact on finances and the flow of wealth between generations. A recent study showed that between now and 2061, over $59 trillion will be handed down from one generation to the next. It’s the greatest wealth transfer in history.

So it’s absolutely imperative to prevent a difficult situation from becoming more distressing. Legacy or estate planning should be carried out early, and thoroughly. It is a sad inevitability that one day you’ll be dealing with this for members of your own family.

The Importance of Estate Planning

The passing of one’s parents must be one of the biggest losses and greatest sadnesses that we have to deal with in our lives. Would you not prefer to know, well in advance, that the finer details of finances are taken care of, leaving you the time to mourn their passing as you need to?

It’s also wise to build any expected inheritance into your own financial planning. To do so isn’t opportunistic; it’s realistic. Acknowledging the wealth transfer from the previous generation of your family can mean that you’ll know where money for the kids’ education is coming from.

Alternatively, you might be assured that there will be enough inheritance to pay off your mortgage, so more of your income can be allocated to your own retirement savings. So your parents’ estate planning is essentially a fundamental part of your own financial plan, too.

Don’t Delay Important Financial Discussions

However, as well as easing some financial issues, efficient and timely estate planning can have other benefits. Unfortunately, I’ve seen many occasions where families don’t discuss the process and its implications. Soon, the transition of the wealth between generations becomes a source of bitter conflict. It’s led to arguments within families that have ripped right through the very fabric of a sibling bond.

Let’s take an example from our local farming community. And to be honest, I see this all the time. So if you recognize yourself in this story, I promise it’s not you I’m talking about. This happens frighteningly frequently.

Address Possible Sibling Issues in Advance

In the farming community, oftentimes there will be one son or daughter who has remained working on the farm with their parents. The other siblings are high flyers – an attorney, a doctor, maybe an investment advisor. Upon mom and dad’s death, the high flyers see the farm as a cash cow. They’ve grown detached from their family home, and want to sell up. But there’s the sibling who’s been left working the farm, and they know nothing else. They have been on the farm for decades and would be out of a job in a hostile and alien job market.

I’ve seen families absolutely broken apart by this kind of conflict. Had the parents known what was going to follow after they passed away, they would have been heartbroken. And I’m quite sure they would have turned back the clock, and preplanned the entire situation.

How To Have Those Difficult Conversations

I’ll be honest though – it’s not that often that people do thorough enough estate planning. I think it’s because much of our society is still too traditional to be able to speak easily and freely about death. It feels awkward, and sometimes a bit frightening. We don’t want our parents to think we have our eyes on their money, and we don’t want to think about life without our parents.

But really, the sensible thing to do is to have that difficult discussion. In my opinion, it’s always best if the siblings bring up the idea of a family meeting, and they do it with extreme caution, understanding and compassion. This is not about having your eye on your parents’ money – it’s about them knowing that everything is taken care of, and that there’s a plan. What’s most important is that parents always understand that the ultimate decision is theirs, and theirs alone.

Don’t Make Mistakes – Get Some Help

With regards to inheritances, it’s extremely important that all parties understand the tax implications and inherited IRA rules and so on. If circumstances change at any point, it’s important that all aspects of any financial plan reflects those changes. So in cases of a divorce in the family, have you updated your IRA beneficiaries, or the ownership of life insurance policies?

This is where employing a professional to oversee your estate planning can be invaluable. It can sometimes feel like an unnecessary cost, but believe me, it’s better than paying out later for attorney fees to settle disputes.

If you would like to have a meeting to discuss and perhaps plan for your future, feel free to reach out. This could be a speculative meeting, or I’d be happy to help out at family discussions too if you feel it might be helpful. I get great satisfaction out of helping families invest for their future.

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Plus receive my free ebook: 5 Simple Ways to Bring the Purpose Back to Your Retirement Plan