Preserving Family Wealth

Earlier this month, the Wall Street Journal published its first edition of a new magazine called: WSJ.Money. The magazine is a helpful resource that addresses wealth planning for families. I read some of the articles with much interest, because my practice is heavily involved in advising families regarding the transfer of wealth and the retention of wealth from one generation to the next. The new magazine included a short article regarding perpetual trusts or dynasty trusts, which I have drafted for numerous families to help preserve and control wealth after death. While the idea of a trust lasting into perpetuity is a bit difficult to grasp, the same format can be used for long-term trusts, and if the trust is drafted appropriately, it can provide each generation with flexible options regarding possible termination of the trust.

What was most interesting to me was the magazine’s focus on the inability of many wealthy families to preserve wealth from one generation to the next. Recently, I have seen two figures regarding the total wealth of American families. One figure estimates the total wealth at $64.8 trillion. Another source represented the total wealth at just over $63 trillion. Unfortunately, when this wealth transfers down from one generation to the next, the younger generation has a very difficult time preserving the wealth. Often, the wealth is wasted on lavish living and child-like pursuits or hobbies. It is my goal as a planner to help families preserve the wealth and not have it slip through the fingers of their descendants.

It is estimated that $7.6 trillion will be inherited by the Baby Boomers during their lifetimes. This is a significant amount of wealth, and many Baby Boomers will inherit wealth that is simply added to existing wealth which they generated during their lifetimes. It is critical that appropriate estate planning and financial planning be used to preserve this wealth so that it is not wasted through prodigality. The greatest means of preserving and controlling wealth is done through family instruction and the use of effectively drafted trusts. Families must have open dialogue between the older generations and the younger generations. If there are relationship problems or lack of communication, the added wealth will only increase the problems. Families need to prepare their descendants for the receipt of inheritance. Americans need to take the time now to adequately plan and inform their descendants of the transfer of this wealth. Time is of the essence, and your descendants’ livelihood may depend upon it. Leave a legacy—not a mess.

Long-Term Care Changes

The long-term care industry is becoming increasingly disrupted. Last weekend in the Wall Street Journal, an article appeared addressing the affordability of long-term care. As many have learned, the cost of long-term care insurance has skyrocketed, and many insurance companies that previously offered the product have exited from the market place.

Recently, Genworth Financial, which is the largest seller of long-term care insurance in the United States, declared that it would stop writing new individual long-term care policies in the State of California. The company’s withdrawal from the State of California may portend Genworth’s future action in other states. It is becoming increasingly difficult for families to address the cost of skilled-nursing care or other long-term care facilities. In Wisconsin, cost of a skilled-nursing home can exceed $300.00 per day. In fact, at one of the nursing homes in Janesville, Wisconsin, the cost does exceed $300.00 per day, depending upon the needs of the patient. In addition, the Medicaid system in the United States is becoming excessively drawn upon to cover the long-term care costs of millions of aging Americans. While the idea of government support is useful, the extent of the support is beginning to drain the federal budget. As the Baby Boomers increase in age, we will only see an even larger scope of Medicaid applicants.

It is never too early to consider how you will address the cost of long-term care. While my firm does not sell the insurance product, I can provide you information on long-term care insurance alternatives and options. The State of Wisconsin has also published a comprehensive report, which can be found at oci.wi.gov/pub_list/pi-047.pdf. The report provides detailed information on long-term care insurance policies and other aspects of the long-term care industry.