In our last blog, we took a look at our increasing life expectancy and offered steps so you don’t outlive your money. Today we will take a look at how our longer lives affect not just our immediate family but multiple generations.
With our longer lives, we are seeing more families that are four—or even five—generations deep. This demographic shift can have a dramatic financial impact. Instead of a family focused on its own finances, it may now have to consider issues that span generations.
Here are some of the multigenerational issues you might encounter:
- Aging parents: With our longer lives, we can expect to live 20, 30, or more years after retiring. You may find that your own parents cannot take care of themselves in their advanced years, which means you and your siblings may need to help them. To do that effectively, you need candid conversations with your parents about their health and long-term care, including where they would like to live and whether they can pay for the care. Do they have assets that they can tap? Should the kids buy long-term-care insurance for them? Or are their assets so few that they would qualify for Medicaid? What can you and your siblings do for your parents without jeopardizing your own financial futures?
- Estate planning: When you have more than enough financial resources to take care of yourself, the question becomes how you will you pass it on. Will you do so while you are alive so you can see your gifts enjoyed by your children or grandchildren? Will you do it after you pass? Do you intend to spend most or all of it before you die? Do you want to donate your money to charity instead and compel your heirs to make their own way in life? Your answers to these questions have tremendous ramifications for the generations that follow.
- Business succession: If you are a business owner, you should decide well before you retire what to do with the family business. Do you sell it to outsiders or keep it in the family? Is anyone in the family willing and able to run it? What tax issues are involved? Consider getting a financial planner involved since this is a complex issue.
- College versus retirement: You may want to help your children and grandchildren pay for the high cost of college, but how do you do that while making sure you are saving adequately for your own retirement (and perhaps taking care of aging parents)? Remember, your children can get financial aid for college. You do not get financial aid for retirement, so put your savings first. Grandparents, especially those who face an estate tax issue, might consider paying for their grandchildren’s tuition without the payments triggering a gift tax.
- Lending money: You might be considering helping your son to afford his first home or your granddaughter to start a business. But if the loan is not paid back, there may be friction in the family and tax issues as well. What if you lend money to a financially struggling relative who does not deserve to be bailed out? What impact will a loan have on your financial goals, such as retirement?
Our increasing life expectancy will likely mean even more complicated multigenerational issues. Compounding the situation is the fact that people don’t like to talk about their money and that different generations view money differently. That is why it is important to bring the generations of your family together to discuss any interconnected financial issues. Consider hiring a financial advisor who can break down complex issues, provide expertise, lend an independent perspective, and motivate action.