Many families delay difficult discussions until a health crisis hits. But with life expectancy on the rise and the cost of long-term care steadily increasing, the time to start the conversation may be now.

PLANNING EARLY

ISSUES RELATED TO your family's future health and wellness can have an impact on every aspect of your life. Addressing those issues sooner rather than later makes good sense. For example, having a dialogue with your loved ones as early as possible to uncover gaps in your planning, and making sure your wishes are known and fully understood, can reduce everyone's anxiety about what the future may hold.

Communication and preparation are key ingredients for executing a successful plan.

A family health crisis of any kind, be it a catastrophic physical health issue, acute or gradual cognitive decline, or a death in the family, typically requires open communication and the sharing of key information so everyone can be on the same page and know what to expect. Not planning for the future and not sharing the appropriate information with family members and loved ones is a recipe for family conflict that can negatively affect your family's financial resources and interpersonal relationships, and may result in the loss of planning options. Communication and preparation are key ingredients for executing a successful plan that relies on other people to carry out your preferences.

The mere act of thoughtfully preparing for this type of conversation with loved ones can be the most important step to achieving your goals and avoiding some of the pitfalls that can result from being caught off guard. It can allow you to examine what's really important to you and to reflect upon how your wishes may affect your loved ones. One of the best ways to lay the groundwork for holding these discussions can be to enlist your private wealth advisor to help you map out the issues you have identified and together develop a strategy for sharing your ideas and concerns with your family. After input from advisors, people often determine the best approach is to have separate discussions with different family members, each tailored to that person's capacity to fully appreciate the importance and gravity of putting a well- thought-out plan in place.

Typically, conversations should take place every three to five years, or sooner should you and your family reach milestones along the way.

This guide is designed to help you engage in effective conversations with your advisors and loved ones about aging and your wealth. Typically, conversations should take place every three to five years, or sooner should you and your family reach milestones along the way — be they expected or unexpected — such as changes in your family or current wishes. Financial considerations, such as material changes to your balance sheet or changes in the law may also spur the need to re-engage with family and advisors.



EIGHT PLANNING ELEMENTS

Don't know where to start when it comes to planning for the financial future of yourself and your loved ones? The "Eight C's" can help you identify opportunities and potential roadblocks in the planning process; effectively socialize the subject matter with your family; and incorporate your values and wishes into a sound long-term wellness plan and a long-lasting legacy.

When planning for the future, it may be necessary to talk not only with your attorney and private client advisor, but with your accountant, insurance specialist and primary physician as well.

  1. Collaborate with your advisors, family members and loved ones to discuss your long-term goals and concerns.
  2. Consult with your advisors to make sure your health and estate planning documents are up-to-date and reflect your current wishes. It may be necessary to talk not only with your attorney and private client advisor, but with your accountant, insurance specialist and primary physician as well.
  3. Consider whom to name as your executor, trustee, guardian, health-care agent, and agent under your durable power of attorney
  4. Create a comprehensive list that includes a current balance sheet, health insurance policies, long-term-care policies, life insurance policies, and the contact information for your primary physician, private client advisor, lawyer, accountant and insurance specialist.
  5. Collect all key legal documents as well as your financial and online information, and compile a list indicating where they are kept or stored, or who may be in possession of them — including but not limited to:
    • Insurance policies
    • Bank accounts and credit card information
    • Mortgages and other lines of credit
    • Titles, deeds and registrations
    • Prior income and gift tax returns
    • Online accounts and passwords
    • Will, trust agreements, living Will, health-care proxy and power of attorney
    • Safe-deposit-box keys
  6. Concentrate on business-related issues such as management-succession planning.
  7. Check all documents to ensure their accuracy and continued relevance.
  8. Communicate, when appropriate, your desired goals to family members, loved ones and key advisors.

Starting the Conversation

Many people fully embrace the planning process but do so privately. They may take action, but they do this without informing spouses or partners, who are then left in the dark until their loved one is ill. Talking about your wishes for health care and your estate can be challenging, and in some families, discussing issues involving mortality is taboo.

The reality is by 2030, when the last of the baby boomers has turned 65, one in every five Americans — or about 72 million people — will be an older adult.1 And though the current average life expectancy in the United States is 79 years, those who live to age 65 have a much greater chance of living another 20 years.

"One of the negatives of longevity is people delay the planning process because they assume they're going to live a long time," says Mitchell Drossman, national director of Wealth Planning Strategies at U.S. Trust. "Yet the longer they wait, the greater the chance cognitive decline or an unexpected illness could compromise their ability to manage their own affairs or effectively direct another person to manage their affairs."

Typically, conversations should take place every three to five years, or sooner should you and your family reach milestones along the way.

Despite initial trepidation, many families who have had these conversations have had a positive experience and now feel prepared for whatever the future may bring.

"The earlier you start, the less emotionally charged the topic of severe illness or the end of your life can be," says Gregory B. Cerbone, chief fiduciary officer at U.S. Trust.

What can happen if you don't do any planning? To start, your wishes may not be carried out. You may not receive the medical care you want, and in some cases, the state in which you live could determine what type of care you receive and who is to inherit your estate.

On the flip side, planning now can be a positive, rewarding experience. It can help you focus on what's really important to you and let you narrow down the seemingly limitless options available. Your planning can inspire others in your family to do the same and encourage them to have similar discussions and take similar precautions.

As with other aspects of your life, there's no one-size-fits-all approach to designing your health or estate plans. Each individual is unique, and therefore so is each event and thus each plan. With that said, we believe the following sections of this paper should provide you with a framework for you to begin developing your own unique plan.

CREATING A PLAN

To whom and how you dispose of your property is the foundation of your estate plan. Personal wishes will be your most important guidepost. What you own and how you own it will determine how you pass property to others. However, bequests and dispositions likely will be shaped by tax considerations. Even if tax considerations are not pertinent, the choice between outright bequests or transfers in trust may depend on a beneficiary's age, maturity and many other non-tax factors. Once this architecture is in place, you will need to consider naming executors to administer and settle your estate, trustees to manage and invest trust assets, and perhaps guardians to care for minor children.

WHEN EQUAL ISN'T FAIR

Some of the most difficult planning choices arise when deciding how to divide assets among children. Even leaving equal amounts could seem unfair in some situations. Consider, for example, a Will that leaves assets to two children, one of whom is a high-earning business executive while the other is a lower-earning teacher in a public school. The teacher may resent the sibling for receiving an equal share because the business professional is in a better financial position. On the other hand, the executive might come to feel punished for her success if she does not receive an equal share.

"In Wills I've seen, on almost every occasion when property is not left equally to children, people put one sentence in the Will, and unfortunately it's 'I have intentionally left an unequal disposition,' but there's no further explanation as to the testator's reasoning," says Mitchell Drossman, national director of Wealth Planning Strategies at U.S. Trust. "There are several different tools you can use to avoid leaving heirs with bad feelings as to their inheritance. Perhaps the most simple thing to do is have a discussion with your children about your thought process. If having this type of discussion during your life won't work for your family, consider leaving them a letter to be read in conjunction with your Will," explains Drossman.

Transparency during the testator's life can be a double-edged sword, especially if the testator changes his or her mind over time. However, transparency at death can help to alleviate potential conflicts between your heirs.

While transparency is important when communicating the intent and purpose of wealth, wealth creators may not wish to communicate the specifics of asset distribution or the potential size of such distributions. Estate plans, like wealth, often change over time, and revealing too much too early can lead to unmet expectations; yet revealing too little can result in hurt feelings or even animosity toward other recipients.

Fiduciaries

You can take specific steps to help ensure your health and financial wishes are carried out following your incapacity or death by naming an individual or institution as your fiduciary. A fiduciary has a legal obligation to carry out certain tasks on your behalf. Fiduciaries are held to a high standard of conduct in carrying out their duties.

The choice of fiduciaries is one of the most important decisions you'll ever make. And while naming an individual as a fiduciary can be viewed as an honor you bestow on a trusted family member or friend, it's important to keep in mind that the title comes with serious responsibilities and potential personal liability for breaching those responsibilities. Serving as a fiduciary can require an individual to devote significant amounts of time to carrying out the role. Even a layperson will need to be aware of what a "prudent fiduciary" should know and will be expected to act accordingly.

Fiduciaries are held to a high standard of conduct in carrying out their duties.

Similarly, who you select to act as your health-care agent should you suffer a temporary or permanent disability and lose the capacity to make critical decisions is something to seriously consider. Another important decision is who you might select as an agent or attorney-in-fact under a durable power of attorney to make financial decisions for you if you are unable to do so because of an illness or other reasons. Like fiduciaries, these roles carry with them enormous responsibilities and are also positions of trust — so you will need to choose wisely who will fill them.

Fiduciaries to consider

Remember, the fiduciary you choose can have a significant impact on whether the terms of your Will or trusts are effectively implemented and fulfilled. Keep in mind an executor may have an important role, but it may be limited in duration. A trustee's role may be narrower in scope, but could last many years — e.g., for the life of a beneficiary. These types of considerations, along with many other factors, can help you select the right individuals or organizations for the proper roles.

Executor/personal representative

When preparing your Will, one of the important decisions is choosing an executor (in some jurisdictions, referred to as a personal representative), who can be an individual fiduciary and/or a corporate fiduciary. Your executor will have a duty to collect and preserve your assets, pay your final bills, file your final income tax return, make certain tax elections and distribute the assets of your estate pursuant to the terms of your Will. Dying without a Will is known as dying "intestate." When this happens, a court with jurisdiction over your affairs will distribute your assets according to the state's intestate statute, without regard to any conversations you may have had with your loved ones.

If you decide to name an individual to serve in any fiduciary role, keep in mind the person's age and skill set.

Many testators choose a corporate executor rather than an individual executor due to the work demanded and the knowledge required. A corporate fiduciary usually has teams of seasoned professionals who have years of experience in administering estates. Unlike an individual executor, a corporate executor must be well insured and have adequate capital under federal and state laws.

If you decide to name an individual to serve in any fiduciary role, keep in mind the person's age and skill set. For example, if you name an individual of your own age to serve as the executor of your estate, over time they could end up with some type of cognitive impairment. They may also decide the role is too much of a burden in their advanced age, or pass away before it is time for them to serve.

Trustee

Like an executor, a trustee may be an individual, a corporation, or the two may serve as co-trustees. Trustees will be expected to fully understand the written terms of your trust document and to faithfully and prudently carry out its terms. They will be expected to maintain principal and income records, file state and federal tax returns, and prudently invest your trust's assets. They must keep precise records, produce information at a beneficiary's request and defend the trust. Many find that the time requirements and complexity of trust administration exceeds an individual's capacity and look to corporate trustees to administer their trusts. Corporate trustees can offer neutrality, continuity of administration over the life of the trust, and expertise in dealing with unique trust terms and changing state and federal laws that may affect the administration of the trust over time. Some clients prefer to name an individual to serve as "co-trustee" with a corporate trustee so the corporate trustee can shoulder the administrative burdens and investment responsibilities while the individual trustee can provide insight into the backgrounds and needs of the beneficiaries. This arrangement works well for many families.

Guardian

The guardian's duties may include ensuring the family member is cared for and to make medical care, education and living accommodation decisions on their behalf.

Many families, particularly those with minor children or disabled children, appoint a guardian — a type of fiduciary who will become legally responsible for such a family member (or her or his property) upon one's death or incapacity. The guardian's duties may include ensuring the family member is cared for and to make medical care, education and living accommodation decisions on their behalf. When naming a guardian, consider the age, temperament and financial sophistication of the individual and whether the person shares your values. Many people choose to name two separate guardians: someone to care for their minor children, typically referred to as a "guardian of the person," and someone else to oversee their finances, typically referred to as a "guardian of the property."

A trust can be created during your life or at your death, either through a lifetime document (a trust agreement) or through your Will (below are examples of types of trusts you might create during your lifetime or at death). In either case, you name a trustee to hold and administer the property you transfer into the trust in accordance with the trust's terms. The trust's terms will identify the people or charities (known as beneficiaries) who have a right to receive distributions from the trust during the term of the trust as well as at its termination. There are two types of beneficiaries. Current beneficiaries have a present right to receive mandatory or discretionary distributions of income and/or principal. Remainder beneficiaries have rights to distributions only after the current beneficiaries' rights have ended upon conclusion of the trust's term.

Trusts can be revocable or they can be irrevocable. Revocable trusts are generally used as substitutes for traditional Wills. Irrevocable trusts are generally established for tax and asset-protection purposes. Of course, you should consult with your advisor and attorney to determine which type of trust might be right for you. Creating trusts during your life not only allows you to accomplish specific planning goals but can also provide insight for family members into how you envision your legacy and values being implemented. Establishing trusts, particularly during your lifetime, creates the opportunity to explore methods of wealth transfer in ways that fit your unique circumstances and align with your goals and values. By starting your trust planning as early as possible, you will have time to consider, with input from your family and advisors, the distribution provisions that can be custom-tailored for your family. Provisions can be different for each beneficiary. Distribution provisions can permit a beneficiary to receive distributions on a regular basis, or you might give the trustee the absolute discretion to make distributions based upon what is in the best interest of that beneficiary. Sometimes people get creative and try to encourage certain behaviors, such as providing for distributions for graduating from school, the purchase of a first home, getting married or starting a business.

During life: Revocable (living) trusts

One of the most common estate-planning tools is a revocable trust. As its name suggests, a revocable trust can be changed or revoked at any time after it's been created, so long as you have legal capacity to do so. A revocable trust is often used as a substitute for a Will. It is preferred over a Will in states with high probate costs because assets in a trust do not have to go through the probate process, which can be lengthy. This can reduce costs and accelerate distributions to beneficiaries. Your ability to maintain complete and total control over the property in your revocable trust causes the trust assets to be includable in your taxable estate. Accordingly, a revocable trust will not reduce your federal estate tax liability. Your revocable trust can utilize estate tax reduction strategies, but the revocable trust itself will not produce estate tax savings.

"Not only can a revocable trust be an alternative to a Will, but it can also provide for asset management during those times when you may suffer from a temporary or permanent disability," explains Drossman. "It facilitates a seamless management of your assets without the need to rely on a durable power of attorney or a court-appointed guardian."

Your ability to maintain complete and total control over the property in your revocable trust causes the trust assets to be includable in your taxable estate.

Only those assets which you re-title in the name of your revocable trust will generally avoid probate. All other assets (excluding assets that have beneficiary designations, like insurance and retirement plans, and certain joint property) will likely be subject to the probate process. Revocable trusts are often used in conjunction with "pour-over" Wills, since it is quite common for people who set up revocable trusts to hold some assets in their individual name. In this way, at your death, these assets can "pour over" into your revocable trust and follow the designated terms of the trust.

Another benefit of revocable trusts versus Wills is privacy. A Will is generally required to be filed with the court at your death and becomes public information for anyone who cares to search for it. Trusts, on the other hand, are typically not filed with the court, meaning the provisions of the trust can generally remain private to the outside world.

During life: Irrevocable trusts

Irrevocable trusts are established during your life in order to facilitate estate planning, and secure asset protection. To secure certain legal and tax benefits like asset protection and certain tax deductions, these trusts must be irrevocable, meaning that the grantor can ordinarily not change or revoke the trust once it has been created. For added flexibility, irrevocable trusts can be drafted to give a third party the right to change certain trust provisions. Typical powers may include giving a third party authority to add or subtract certain classes of beneficiaries, move the trust to a different state, or withhold distributions for any reason if it is in the best interest of the beneficiaries.

After death: Testamentary trusts

Another common estate planning tool is a testamentary trust — a type of irrevocable trust, created by a Will, that becomes effective only after your death. Because you have passed away and are not capable of changing its terms, it is also an irrevocable trust.

Though time may pass between the drafting of a testamentary trust and its becoming effective, you can help make the transfer of assets run more smoothly by discussing goals with the nominated trustees and clarifying your intentions during your lifetime. This allows trustees to have a better feel for why the trust will be established, what it seeks to accomplish, how it fits within your overall plan, and how it aligns with your values and goals. While a trustee is required to follow the express terms of the trust, sometimes written terms can be open to interpretation, and it is best to discuss what the terms actually mean to you and what you intend by them.

For example, if a distribution is to be made to support the beneficiary's lifestyle, does it mean the beneficiary's lifestyle on the date you signed the trust, the date of your death, or some other date? Careful and specific drafting can resolve such ambiguities. On the other hand, you may want to keep a trust flexible. If so, permitting a trustee to make distributions that are in the best interest of the beneficiary as determined at the discretion of the trustee, may be one way of doing so.

"If you are establishing a testamentary trust, start with a conversation with the future trustee," says Stacy Allred, wealth strategist leading the Center for Family Wealth at Merrill Lynch. "A trustee is often given flexibility to make 'discretionary' distributions of assets for the beneficiary's needs, such as health, education, maintenance and support. Discussing with the nominated trustees your philosophies and guidelines you are using to make lifetime gifting decisions can be helpful."

Communication: Preparing for the Future

For those who've built careers on being decisive, handing over the reins to someone else can be particularly difficult.

Even if you name fiduciaries, set up a trust and diligently prepare for the transfer of wealth upon your death, it's unlikely the transfer will go smoothly if intentions are not clearly communicated prior to the time it actually occurs. Consider a client experiencing cognitive decline who rejected help with financial planning.3 As a result, his family was left with a financial quagmire, finding checks and misfiled paperwork many months after his passing.

For those who've built careers on being decisive, handing over the reins to someone else can be particularly difficult. "It was a tug-of-war to get my own parents to realize they couldn't handle their finances anymore," says Lori Sieber, a senior trust officer at U.S. Trust. "It's a trust issue and a control issue. It's probably one of the hardest conversations children will ever have with their parents." Parents may feel like they're losing control or being forced to do something that perhaps they are not equipped to understand anymore. That's why sharing your thoughts and eliciting their feedback as early as possible is crucial, so that everyone has time to consider each other's point of view. Family members can support aged or infirm loved ones by helping them relinquish control in stages, rather than asking them to do so in one fell swoop.

Family members can support aged or infirm loved ones by helping them relinquish control in stages, rather than asking them to do so in one fell swoop.

Most wealth creators want their surviving loved ones to be resilient and empowered to make wealth decisions that align with the family's values. To achieve this goal, it's paramount to engage in clear communication, a strong system of family governance, and ongoing financial education and mentoring. Ultimately, these steps help the next generation have the confidence and know-how necessary to make decisions in alignment with family values and goals.

ASSESS ASSETS

The type of asset and how you hold title to that asset matters. Assets held in your name or in the name of your revocable trust will be distributed under the terms of your Will or revocable trust. If these documents are not in place, distribution decisions will be made pursuant to state law. However, assets held jointly with another person with right of survivorship (e.g., assets held in a joint tenancy or a tenancy by the entirety) will generally pass directly to that person and not be subject to the terms of your Will or trust. Other assets that generally pass outside of your Will or trust include insurance, IRAs and retirement plans, pay-on-death (POD) bank accounts and transfer-on-death (TOD) securities accounts.

As a starting point, it's a good idea to identify your assets and how each is titled. We recommend to our clients U.S. Trust's Your Personal Inventory Manager, which can be a useful tool for organizing financial and estate documents related to the different types of assets one might own.


Types of Assets

Tangible personal property

Some, but not all, states allow the creation of a list to dispose of tangible personal property, such as jewelry, clothes, art and collectibles that can be incorporated on your death into your Will. By allowing such lists, states have given you the ability to rewrite a portion of your estate plan without having to go back to your attorney and incur additional legal fees. By sharing your list with your family members and discussing the reasons behind your decisions, you may be able to eliminate many if not all ill feelings among your heirs, who might otherwise disagree with each other over who is entitled to a particular object. As an alternative, you might leave instructions to the executor to sell everything and then distribute the proceeds to your heirs. Or you may want to design some type of selection process the heirs must follow, such as age order.

Some families may have multiple beneficiaries decide on distribution of the assets, but the process should be clear. Some may opt to bring in a third party to divide personal property if the members of the group cannot come to an agreement on their own. Yet another asset distribution strategy is to simply ask heirs to choose the items they want. Often, this self-selection process works surprisingly well, because heirs make such decisions for different reasons. While economically valuable items might be part of the equation, sometimes families don't consider the fact that sentimental items, though often less valuable, can be just as desirable.

"You may want to use the planning process as a chance to gift some things you are ready to part with," says Allred. "That way, you can participate in the enjoyment of giving during life, versus after your passing."

ORGANIZING PAPERWORK

ISSUE: ORGANIZING CRUCIAL PAPERWORK LEADS TO A SENSE OF INFORMATION OVERLOAD.

Solution: U.S. Trust's Personal Inventory Manager link to can get you started by serving as a master document on which you can store personal information ranging from passwords and PINs to medical records, financial documents and key contacts


Residential property

Distributing residential property requires an understanding of both economic and sentimental value. Consider a father who left a beach house to his four adult children in the hope it would become a legacy property. Three of the kids were able to pay their portion of the maintenance fees, but one wasn't. This led to a sense of insecurity on the part of the less-affluent sibling, who felt he was unable to contribute his fair share and feared resentment from his siblings.

Distributing residential property requires an understanding of both economic and sentimental value.

"In these cases, one should keep an eye on how the plan may impact the surviving family's economic situation and relationship dynamics," says Kevin Hindman, national trust executive at Merrill Lynch. "If one wishes to keep residential property in the family, one may need to provide funds for upkeep, taxes, etc."

Intangible property

Perhaps the majority of your assets — by value — will fall in the category of intangible assets. Your bank, investment management and retirement accounts are examples of intangible assets. So is a family business, ownership of which may be represented by shares of stock or partnership units. Generally these assets are less personal in nature and therefore choosing who receives what will not be as challenging as personal or residential property. But, that is usually not the case when it comes to a family business (we discuss business property and succession below). Still, you need to give thought as to how these assets pass to your beneficiaries. Your retirement account may pass to those specified in a beneficiary designation. Your brokerage account may pass directly to a spouse or another if titled as joint with right of survivorship or as a transfer on death account. Or, if you titled the account in the name of your revocable trust, it will be disposed of in accordance with the trust's terms. If you have not transferred an intangible asset into your revocable trust or if it does not pass by right of survivorship or beneficiary designation, then it will be disposed of under the terms of your last Will.

ORGANIZING AND PROTECTING DIGITAL ASSETS4

Many families keep important information such as passwords and account numbers saved on their computers or on a portable USB stick, but others still keep everything locked away in file cabinets. Regardless of where it's stored, it's important to know in advance where critical information is located. Collecting asset information now can make things easier when you, your family or your fiduciary needs it the most — in the event you become incapacitated, for example. U.S. Trust's Your Personal Inventory Manager can be a useful tool for itemizing important documents and key digital assets, such as:

  • Personal assets: photos, videos, emails, music
  • Social digital assets: accounts on all social media platforms
  • Financial digital assets: on-line banking sites, bill-paying sites, investment manager sites, credit card sites, etc.
  • Business digital assets: domain names and web access, patent or customer information, intellectual property

You can help protect these assets by creating an inventory where you list storage locations, usernames and passwords. This can be kept with the latest version of your Will, trusts and other estate planning documents. You may not only want to consider giving your agent, trustee or executor the authority to access your digital assets (e.g., through use of a password and/or username), but you may also want to give those persons authority to have access to, and legal control over, your digital assets and their content so they can control their disposition effectively upon your death or incapacity.


Business Property and Succession

Assets may include an interest in a closely held business, which may consist of ownership in a corporation, partnership or limited liability company. Complex business succession issues need to be considered, including: when will the current owner step out of the business; who will be the recipients of the business; if some, but not all, family members are involved in the business, how will this affect the business succession plan; how will the succession plan be integrated into the overall estate plan, in a manner which is fair to all family members. "These issues are complicated, and often need special attention to resolve tax, as well as non-tax, issues and concerns," says Steven Lavner, managing director, wealth strategies advisor, Wealth Planning Strategies Group at U.S. Trust. "If the overall estate plan calls for an equal distribution of assets among the children, this may be difficult to achieve if it is also desired that the business be left to the family members who are involved in the business," he explains. In order to decide on a business succession plan, it will be necessary to determine the value of the business. While valuation of some assets, such as publicly traded stock, is fairly easy, valuation of a closely held business is far more complicated. In order to come up with a plan that is desirable and fair to all, Lavner advises business succession planning should start as early as possible. This will at least allow for the time to fully discuss and hopefully resolve many of these issues.

While valuation of some assets, such as publicly traded stock, is fairly easy, valuation of a closely held business is far more complicated.

An alternative solution could be to create a class of voting and non-voting stock, and distribute voting stock to those in the business and non-voting stock to others. This may be appropriate when there are limited other assets to pass to family members not participating in the business. But this too can be troublesome for family members not participating in the business. Determining the most appropriate solution often seems to require Solomon-like wisdom.

Depending upon what you choose to do with your business after you retire or at your death, keep certain things in mind, such as tax consequences, whether certain but not all family members have an interest in the business, whether you view it as your legacy and wish it to continue, etc. Here are some typical ways of managing business succession:

  • Lifetime Gift/Sale to Your Family. If your family is involved in the business, you could give or sell your business to them.
  • Sale to Non-Family During Your Lifetime. If your family is not involved in the business, you could sell the business to someone who is not a family member when you are ready to move on.
  • Gift/Sale Upon Death. If you are not ready to retire, you could simply provide for the sale or distribution of your business upon your death.
  • Sale to Co-owners. If you co-own the business with others, you could enter into an agreement with them to sell, or require them to buy, your business interest upon the occurrence of one or more events.
  • Create an Employee Stock-Ownership Plan. You can sell some or all of the business to your employees.

Finally, if you actively manage the business, you should make sure to have a plan in place for one or more persons to take over the management of the business if you are no longer able to carry out those responsibilities.

If you actively manage the business, you should make sure to have a plan in place for one or more persons to take over the management of the business if you are no longer able to carry out those responsibilities.

For more information on succession planning, see Fine Tuning Your Business at ustrust.com/finetuningyourbusiness.



PASSING ON YOUR LEGACY

Sharing Values

In addition to distributing property of economic value, families need to consider how they'll pass along a priceless asset: their values and legacy.

There are a few ways to help achieve this goal. One is to create a legacy letter describing your values, life lessons, and hopes and dreams for the future. This may include elements of your life story, including your biggest accomplishments and/or deepest regrets. Such a letter is not meant to be binding on your heirs or fiduciaries, but rather is meant to tell your story, why you hold the values you do, why you set the goals you have set, and why you hope your family will not only respect those values and goals but pass them along as well.

Families need to consider how they'll pass along a priceless asset: their values and legacy.

Talking about your legacy can be both illuminating and instructive. Sometimes, the mere act of memorializing the story of how your wealth was created can help the next generation find the purpose and value in their inheritance. Technology continues to make it easier for families to document and define their legacy. Capturing stories on video and legacy applications like Immortalia7 offer new ways to chronicle a narrative using digital devices. Whether they see, read or hear it, providing future generations the opportunity to understand your story is extremely powerful.

As people live longer, an increasing number of Americans will grapple with various forms of cognitive decline, including dementia and Alzheimer's disease. These are commonly characterized by memory loss, decreased or poor judgment, and difficulty with familiar tasks.5 In 2010, the national cost of medical care for people with dementia reached $109 billion, making it more expensive than both cancer and heart disease.6

And though risk increases as one grows older, age is not the only factor in the onset of Alzheimer's. Bank of America Merrill Lynch executive Alister Bazaz, whose wife, Cecile, was diagnosed with early-onset Alzheimer's disease at the age of 51, learned the hard way.

As Alister and Cecile were relatively young, they did not have long-term-care insurance, which could have paid for an at-home caregiver for Cecile during the first stages of the disease, and then for her residence care. But Bazaz had wisely purchased higher amounts of long-term disability insurance, above and beyond the basic level provided by Cecile's employer, several years earlier. Long-term disability insurance has substantially compensated for Cecile's loss of income and the very high costs of 24/7 care.

To prepare, "you need to assess your own personal situation," says Bazaz. "Are you both working, do you both have long-term disability coverage, and is the coverage adequate to take care of you in the event of a long illness? Without the policy my payments would be coming significantly out of pocket." Had Alister not been proactive before his wife's diagnosis, they might have found themselves financially burdened.

THE CHALLENGES OF CARETAKING

Before Illness: Anticipating Caretaking Needs

Another aspect of planning for the future many people tend to overlook is long-term care. While few people anticipate needing long-term care, the reality is 70% of those who turned 65 in 2015 will need some form of long-term care during their lifetime.8 As life expectancy increases, so do the chances of health complications — both expected and unexpected — that will call for professional care. And as costs continue to rise, funding long-term care is of mounting concern. In fact, only four in 10 wealthy individuals consider themselves prepared for the financial impact of long-term care, according to a U.S. Trust survey.9

Yet all too often, health-care planning begins and ends with naming a health-care proxy and creating a living Will. The fact is these documents are just the starting point for making caretaking decisions.

All too often, health-care planning begins and ends with naming a health-care proxy and creating a living Will.

That's why it helps to consider and plan for how you would fund a long-term illness, and to define and communicate your expectations of care at every level, while you and your loved ones are still healthy.


During Illness: Managing Incapacity and Family Dynamics

Planning now for old age and possible incapacity also gives families time to think about different levels of care that might be appropriate in different scenarios. Knowing how to choose caregivers and identifying when it's necessary to move into a facility, or being aware of desired care needs after surgery or treatment, allows you to plan and prepare for a range of situations as well as to make your wishes and caretaking preferences known to family members.

Dealing with a long-term illness or disability is never easy, but having transparent discussions with family members about the common challenges of caretaking can help alleviate some of the stress these situations will inevitably bring. For instance, although 87% of people receive at least some of their care from outside parties,10 many family members feel a sense of guilt about paying someone else to care for a loved one. And for family members who become caretakers themselves, the experience can be emotionally and financially draining.11 Many familial caretakers are also part of the "sandwich generation," those boomers and Gen X-ers who simultaneously balance their children's college tuition with caring for their parents.

Long-Term Care Insurance

Long-term-care insurance can provide a financial safety net should you or a loved one face a long-term illness or disability. The trade-off between obtaining coverage earlier in life at a lower premium or waiting until your 50s or 60s and paying higher premiums is a tricky one. But if you wait too long, there's an increased chance you won't be able to obtain coverage at all. Generally, in order for long-term-care insurance to take effect, it must be purchased before any diagnosis of impairment. Though people usually start talking about it in their 50s, there's no one right age to obtain long-term-care insurance, says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. Hutchins suggests starting the process by asking key questions about your family health history, your current risk factors and your potential for longevity.

Long-term-care insurance can provide a financial safety net should you or a loved one face a long-term illness or disability.

After factoring in health concerns, work with your private client advisor to determine how far you can spend down your assets. Using U.S. Trust's proprietary modeling tools, your private client advisor, along with a wealth strategist, can run cash-flow projections based on a number of different factors and assumptions, including your aversion to risk and long-term care costs.

"When you look at your wealth projections with your private client advisor, remember not all risks are created equal," explains Hutchins. "For example, when it comes to inflation's impact on the ability to achieve financial goals related to long-term care, one should consider factoring in an above-average inflation rate because costs continue to rise at a surprising clip."

Considering the expense of long-term care can also help families foresee potential issues.

Considering the expense of long-term care can also help families foresee potential issues. But keep in mind there are other concerns, such as the importance of communicating your wishes as to who will be providing care (family member or outsourced), what type of caregiving (outsourced; in home; family member) you'd like to receive, where you'd like to be taken care of (home or facility), and how the cost is going to be covered. This, in turn, will go a long way in alleviating the emotional burden on your loved ones who would otherwise be making these decisions after you become ill.

CRISIS MANAGEMENT AND SUDDEN DEATH

Not long ago, a client's family experienced a terrible tragedy. The family matriarch was killed in an accident, leaving her loved ones consumed with grief. Fortunately, the family had established a system of family governance and she had developed a detailed estate plan. The governance process kicked in, and the family members knew what their respective roles were — who was to pay the bills, who was to manage the household, etc. This gave each of them a sense of purpose during their time of grief.

Each year, approximately 424,000 people experience sudden cardiac arrest, with only about a 10% survival rate,12 and accidents and other injuries take thousands of lives every year.13 These incidents can leave family members scrambling for answers and suddenly facing a new set of responsibilities, especially when the deceased or incapacitated person was the family's primary breadwinner or financial manager.

Consider another client who lost her husband, the family's primary financial manager, to a sudden heart attack. She and her husband had already established a plan, and she was able to enlist the services of the family's estate planning attorney, accountant and private client advisor to assist in accessing accounts and gathering key documents to help her through this period while she was focused on taking care of the rest of her family, even as she fought through her own grief.

PREPARING FOR TOMORROW MEANS ENHANCING LIFE TODAY

While people will face similar questions about their assets and legacy, planning for the future is a deeply personal process. Your private client advisor can serve as an educator, helping you weigh various options and offering a range of potential solutions. Of course, thinking about one's mortality is never easy, but doing so now will help you enjoy your life today, providing peace of mind and the assurance that all that has been, is and will be your life will continue in the legacy you leave behind.

While people will face similar questions about their assets and legacy, planning for the future is a deeply personal process.

Ultimately, defining your wishes isn't just about what's at stake for your family after your passing. Often, it's about helping you and your loved ones gain clarity and direction for the future and, in doing so, enable you to better enjoy your life.

Ultimately, defining your wishes isn't just about what's at stake for your family after your passing. Often, it's about helping you and your loved ones gain clarity and direction for the future and, in doing so, enable you to better enjoy your life.

Your private client advisor can help you and your family prepare for whatever the future may hold. Meet with your advisor today to help you prepare for tomorrow.

ACTION CHECKLISTS

Three useful guides to help families prepare for the passing of a loved one

  1. Develop a Health and Wellness Plan for the Later Years
  2. Make Organizing Your Estate a Priority
  3. Loss, Legacy and Looking Ahead

 

1The State of Aging and Health in America 2013. Centers for Disease Control and Prevention, U.S. Dept. of Health and Human Services; 2013.

2"How a Will Treating Children Differently Can Still Be Fair," The New York Times, 2016.

3"Early-Stage Caregiving," Alzheimer's Association, 2016.

4"Three Steps to a More Secure Digital Life," U.S. Trust, 2014.

5"Addressing Memory and Your Family," Merrill Lynch Private Banking & Investment Group, 2015.

6"Dementia Has Become More Expensive Than Cancer, Heart Disease," Advisory Board, 2013.

7"The Gift That Only You Can Give," Immortalia, 2016.

8"By the Numbers: Will You Need Long-Term Care?" Merrill Lynch, 2016.

92015 U.S. Trust Insights on Wealth and Worth®.

10, 11"By the Numbers: Will You Need Long-Term Care?" Merrill Lynch, 2016.

12The American Heart Association, 2014.

13 Centers for Disease Control, 2015.

This material should be regarded as general information on healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular healthcare situation, please contact your healthcare, legal or tax advisor.

Long-term-care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.

All guarantees and benefits of an insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.

The opinions, assumptions, estimates and views expressed are as of the date of this publication, are subject to change, and do not necessarily reflect the opinions and views of Bank of America Corporation or any of its affiliates. The information does not constitute advice for making any investment decision or its tax consequences and is not intended as a recommendation, offer or solicitation for the purchase or sale of any investment product or service. Before acting on the information provided, you should consider suitability for your circumstances and, if necessary, seek professional advice.

The information presented here is not intended to be a specific offer to sell or provide, or a specific recommendation to buy, any particular product or service.

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