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Why fewer seniors are leaving inheritances
The Christian
Science Monitor, September 02, 2003
Retirees are increasingly less inclined or able to leave bequests, as living expenses increase. LAS VEGAS – The e-mail from Daisy Granger's parents came
as an unpleasant - even jarring - surprise to her and her three brothers.
"We just want you all to know," their 66-year-old father wrote,
"that you should not expect an inheritance after we pass. We might
leave something, but it's more likely we will spend it to maintain our
lives as we wish for the next 20 or 25 years...." Ms. Granger's father may have been more direct than most parents
about it, but in one way or another thousands of would-be heirs are
getting a similar message: Don't plan on getting an inheritance. With
expected life spans stretching longer and longer and the cost of
healthcare skyrocketing, the idea of parents leaving largesse behind is
becoming secondary to their using it to live as comfortably as possible. At the same time, many older Americans today have a different
ethos about passing on money than their ancestors had. Some believe it's
better for their children to make it on their own, and others want to use
whatever little funds they have left to enjoy their twilight years. The result is a potentially dramatic drop-off in the transference
of wealth in many families that may affect successive generations'
planning about everything from paying off longstanding debts to how long
they will stay in the workforce. "Baby boomers are going to get hit with a series of bad
economic shocks and bad reality checks, one of which is relatively low
inheritances," says Laurence Kotlikoff, an economist at Boston
University who is expert on bequest trends. In many cases, parents give money to their children before they
pass on. Such gifts can take subtle forms, such as financing a
grandchild's private-schooling. But new statistics from a forthcoming report by the American
Association of Retired Persons (AARP) indicate that 14.9 percent of baby
boomers in a 2001 survey expected an inheritance from their parents, down
from 26.9 percent in 1989. Among "post-boomers" (those born
after 1964) the figures are even more startling; only 5.8 percent expect a
bequest, down from 10.8 percent. Add in the recent stock market plummet, which may not be
reflected in those figures, and experts suspect this major change in the
transfer of generational wealth is only becoming more dramatic. Estimates have varied widely over the past decade as to how much
wealth the pre-Boomers would leave to their offspring, with some
economists - at the height of the market bubble - predicting a staggering
$136 trillion would be passed down in the next 50 years. A more moderate,
though still substantial, $41 trillion is seen as a better guess now,
especially due to care expenses, according to American Demographics
magazine. "People are planning to make their money go further because
they might need it," says John Gist, AARP's public policy director.
"Also, people put their money in the market and now that the market
has fallen, they're less optimistic about being able to either give or
receive an inheritance." Nest
eggs as healthcare funds One of the most common reasons is the one that snuck up on Mary
Durlak, of West Falls, N.Y. Her parents lived frugally to save about
$300,000, but her 87-year-old mother broke a hip and has been in a nursing
home for the past three years. At $7,000 a month, the home has swallowed
the money Ms. Durlak's parents had hoped to leave her and her sister.
Durlak, who is single and childless, admits she figured the inheritance
was part of her retirement plan. "Now I say to myself, 'What was I thinking?' " says
Durlak, who works in the marketing department at Buffalo State University.
"It just seemed incredible to me that my mom would be one of the
people who would not only end up in a nursing home, but in a nursing home
for a real long time." As many as 46 percent of senior citizens over age 65 will live in
nursing homes for some amount of time in the next 20 years, AARP says,
costing as much as $100,000 a year. In many cases, children sell the
family home they hoped to inherit to pay health bills. "More people are aware of this, but not nearly enough are
doing enough about it," says attorney Tom Handler of the Chicago firm
of Handler, Thayer, and Duggan, L.L.C. "Not only are they not going
to get an inheritance, but there's a good chance that they'll support
parents themselves." Altered
expectations Still, even in situations where that seems unlikely because of
careful planning and solid long-term health-insurance policies, the
situation has created some bruised feelings in some cases. Ms. Granger of Dallas says she and her brothers felt blindsided
by their altered expectations, although she understands the situation. Her
folks had provided well for them, raising them in a large home in suburban
Houston with a live-in housekeeper. They also paid for their elite private
universities. But in the e-mail, her father explained for the first time that
his business and his investments had faltered badly amid the stumbling
economy. He and their mother had decided to pay off mounting debts, and
work with a financial planner to determine how to make his assets last. "He's given us plenty," Granger says. "If they
want to live it up for now, I have no problem with this. But I think we
all just assumed that money would be there. I certainly haven't been
putting as much into my 401(k) as I might otherwise have done." Another mistake is relying on life insurance to provide a
posthumous present when assets can't. It's true that the longer life spans
- the average life expectancy now is a record 77.2 years - have prompted
life insurance companies to start writing term policies for people up to
age 80. That was unheard of years ago. But the health criteria are so
stringent that few qualify and the costs are so high that people who can
afford it would have no problem leaving bequests for their children
anyway, says Sylvia Singh, co-founder of San Francisco-based Select Quote
Inc. Last week, Ms. Singh wrote two 20-year, $100,000 policies for a
79-year-old woman - for a total of $5,600 a year. "This is not the
sort of thing people do if they're living on Social Security," Singh
notes. "This industry is not here to create an estate where there is
none. It's here so that if people die, the money can cover the liabilities
somebody can get stuck with." There's one other reason inheritance expectations have been
dashed: The dwindling number of parents who feel that leaving money behind
is a priority. This generation of seniors doesn't place great importance
on leaving a bequest. Experts say that today's seniors will leave as much or less than
their own predecessors did in the 1950s, 1960s, and 1970s - and that
whatever is left will be shared among more baby boomer siblings making for
smaller individual gifts. Mr. Kotlikoff coauthored a 1998 paper that
indicated that bequests as a percentage of lifetime earnings was about the
same in 1997 as it was in the 1962. But now he says it will probably drop
because that paper was written as the stock-market boom was ascending. Ripping
up the will Many Seniors figure money ought to be earned, not inherited. Mr.
Handler tells the tale of billionaire Don Reynolds, who died in 1989. He
left $1 million to each of his children, a mere fraction of what he put
into the Don Reynolds Foundation. Says Handler: "He felt that to give his children anymore
would be doing a disservice to them. The idea is to teach them to fish,
not to give them the fish." Claire Brody, 71, of St. Paul, Minn., puts it somewhat
differently: "I gave birth to them, I dried their tears for years,
and I played with their children. Now I'm going to see the world with my
husband. Our turn. Lucky us."
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Action on Aging |
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