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Estate Planning for the 21st Century

The changing needs of today’s elderly are a challenge you can rise to.

By John J. Scroggin, AEP, J.D., LL.M.

In September, we addressed tax and legacy issues with regard to estate planning and their effect on trends in this area. One of the most significant trends is the massive growth of the elderly population, which is increasing more than any other demographic group in the United States. People are generally living longer. Even as their number increases, lifestyles and concerns among the elderly are changing.

To have any hope of implementing an estate plan, advisors will have to address the unique psychological, long-term care and financial issues of the elderly. The desire to retain a sense of control over their lives and the inability to understand the concepts may inhibit them from using many of the more sophisticated planning approaches. As a result, advisors may be forced to view this type of planning as a series of small steps—each done only after the client has reached a comfort level with the prior stage of the plan. Here are some of the specific areas you may want to look at:

Reduced social benefits
The growing number of elderly Americans is weighing down governmental social programs and increases the likelihood that wealthier taxpayers are either being excluded from many such programs or are taxed on their benefits. Contrary to popular belief, there is not an invested account for Social Security participants, and Social Security benefits are not guaranteed. According to the Supreme Court, Congress retains the ability to reduce or even eliminate benefits at any time. The federal government has given the Social Security Administration an IOU. As long as the Social Security taxes collected exceed the paid-out benefits, the IOU is relatively benign. However, somewhere around 2015, the government will have to start paying into the Social Security system—paying off its IOU. This cost will place additional stress on the federal budget and may cause Congress to reexamine how benefits are paid. Many people think the result may be a system that is more needs-based than the current system.


Because of these demographic imperatives, clients are increasingly concerned about their own and their heirs’ ability to rely upon governmental benefits to provide a safety net of support. Estate plans are beginning to reflect these concerns, which are showing a growing interest in the use of family safety nets, dynasty trusts, supplemental needs trusts and spendthrift trusts.

Charitable involvement
During the 1990s, wealth exploded in the United States, but clients tended to increase their charitable transfers more than their family inheritances. According to Paul Schervish at the Social Welfare Research Institute at Boston College, a growing number of wealthy Americans are shifting their financial legacies from heirs to charity. Schervish shows that from 1992 to 1997, the value of charitable bequests went up 110 percent while bequests to heirs only grew 57 percent.

Affluent Americans are also encouraging their heirs to become involved in charitable work. Not only are charitable gifts increasing, but wealthier Americans are also getting more involved in volunteer work. Moreover, donors are demanding that charitable donations be handled in ways they approve of.

Asset protection
Clients are increasingly examining estate-planning approaches that include asset protection for the client and the client’s heirs. Some states seem to be competing in the asset-protection benefits they provide for locally controlled trusts. Even if substantial tort reform occurs, clients will still want to create structures that limit the ability of creditors to seize their assets.

Divorce planning
According to Time magazine, 49 percent of all U.S. marriages end in divorce. Divorce is largely ignored in most estate planning. The high divorce rate means that advisors will increasingly have to deal with the complexities of blended and dysfunctional families, and competing spousal views of how children and stepchildren should be treated. Conflicts among members of blended families are creating more estate litigation. The potential for a client and an heir’s divorce must be addressed in virtually every estate plan. For example, assume a husband creates an irrevocable life insurance trust for a wife and children. If the couple divorces, the wife will retain a beneficial interest in the ILIT at the husband’s death, unless the document provides that divorce terminates all beneficial rights.

International estate planning
The number of Americans living abroad (according to one source, in 2000 there were at least 3 million Americans living overseas) and the number of foreign nationals living here continues to grow. The U.S. Census Bureau estimates that there were 32.5 million foreign-born people in the United States in March 2002, representing 11.5 percent of the U.S. population. These cross-national living arrangements raise myriad estate-planning and tax-planning issues (e.g., the limits on tax-free transfers by U.S.-based foreigners).

The future
Advisors will increasingly have to struggle with getting the elderly to plan for the future. Fear of planning for mortality may lie at the heart of this problem. The combination of a reduced estate tax and the potential shortfall in funds for retirees will also create reticence on the part of taxpayers to make lifetime gifts to descendants and other heirs. The field is changing, and financial advisors will have to adjust to the changes or lose their business to those who are more willing to respond to the evolving marketplace.

John Scroggin, AEP, J.D., LL.M. is a speaker and author with more than 300 articles, outlines and books. To get his free email newsletter on estate and income-tax planning, send an email to


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