Here is part two of our continuing saga of long-term planning.
Part 2
Scaling Back Bequests
Many parents, of course, won’t exhaust their savings. The Center on Wealth and Philanthropy at Boston College estimates that baby boomers and their offspring could inherit as much as $27 trillion over the next four decades, with the progeny of the wealthiest pocketing much of the windfall.
But there are signs that expected bequests are under pressure. According to Boston College’s Center for Retirement Research, from June 2006 to June 2010, falling asset values reduced projected inheritances for baby boomers and estimated 13%. Stock prices have since recovered, although house prices in most markets have not.
Even the affluent are pulling back. Among those with $250,000 or more in investible assets, only 41% said preserving inheritances was a top concern, down from 54% in 2009, according to a Merrill Lynch survey released earlier this year. Due in large part to a 22% decline in projected future bequests of $500,000 or more, the amount individuals expect to transfer fell by 19% from 2008 to 2009, according to Michael Hurd, director of the Center for the Study of Aging at Rand Corp., a nonprofit research organization.
Just as telling is a recent study from Northwestern Mutual Life Insurance Co. in Milwaukee. When asked how prepared they feel to live to various ages, one in three surveyed adults age 60-plus said they didn’t feel prepared financially to live to age 85; almost one in two said the same with regard to age 95.
Suffering in Silence
Not surprisingly, many families are loath to discuss these issues.
In addition to serving as a reminder of the older generation’s mortality, a conversation about the inheritance of Mom and Dad running out of money can provoke anxiety in parents. Many are uncomfortable disclosing the details of their finances in the first place, even more so when they’re worried about disappointing their children.
Adult children, in turn, aren’t eager to ask their parents about money for fear of coming across as greedy. Some feel guilty for thinking about their own financial needs at a time when parents could be facing steep medical or long-term-care expenses. “Due to the new realities of longevity, adult children—who have rightfully assumed they would inherit something substantial from their parents and have lived their lives accordingly—can no longer count on that,” says Lillian Rubin, a sociologist, psychologist, and author. Adult children, she adds, “often feel guilty for even thinking about” inheritance.
Nonetheless, financial advisers say, it is important for families to talk—if only to establish realistic expectations.
Peter Bell, 59, says he and his parents “have always been very open about talking about finances.” That frankness has helped them through some tough choices in the past few years.
Mr. Bell, the president of the National Reverse Mortgage Lenders Association in Washington, D.C., “always assumed” his father, Jerry, 87, and mother, Florence, 88 would leave a substantial inheritance.
After his parents lent his brother money several years ago, Mr. Bell says, the “decided I would get the house and everything else would be split.
But when the elder Bells decided almost two years ago to move into a continuing-care retirement community, it became apparent they would need the proceeds from the sale of their home to finance the community’s $425,000 entry fee. Worse, because the depressed Florida real-estate market hindered their efforts to sell their home in Delray Beach, the couple had to borrow the $425,000 entry fee from their son.
“We have always considered our money as family money,” says Jerry Bell, who anticipates repaying 85% of the loan from the proceeds of the home’s recent sale. “When the kids needed help, we were there for them. And when we needed help, they were there for us.”
By Anne Tergesen in the Wall Street Journal