Personal Wealth Law News

Megatrends is a name given to important changes in the economy or in the behavior of many people. People write books and articles about megatrends, hoping to identify them before others do and to benefit in some way (usually by selling more books). There are several megatrends that have a definite impact on trusts and estates work, and that will be discussed in future blogs:

• People are becoming wealthier, even with the current stock market setbacks. This is a worldwide phenomenon and contributes to the international flavor of much estate planning.
• A large number of people (the always demanding baby boom generation) are getting close to retirement and to a “final” disposition of their assets.
• There is a strong interest in business succession planning, particularly in this part of the country, where there are so many family-owned businesses. To deal with these issues, trusts and estates lawyers often have to act like psychologists, or at least hire them.
• People want to protect their assets against litigation and divorce, among other threats.
• There is and will continue to be a need for increased tax revenues, which leads inevitably to more complex tax laws and the need to plan for them. When Congress talks about tax simplification, tax lawyers go car shopping.

The combination of these megatrends demonstrates the growing importance of the broad practice area of trusts and estates, often referred to by more general names such as personal wealth, private client or wealth transmission, and ensures that this will be an area of growing importance for lawyers, one that focuses not on death but on the enjoyment of life.

In the next blog, we’ll review the campaign to repeal the federal estate tax and the likely future of the tax and the exemption from tax, as well as efforts to repeal the Pa. inheritance tax.

Republished with permission of The Legal Intelligencer.

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We now know what will consume the time and efforts of many thousands of people over the next ten to fifteen years: surveying people about their retirement plans. How long will you work? Where will you live? Who will handle your investments? What can I sell you? We already see almost daily surveys from all corners, attempting to find out what will actually happen to the Baby Boom generation. Of course, there’s a simple explanation for this trend: whatever this generation does, it will have a lot of money to spend, and many people want to know where that money will be spent.

A survey just issued reports that existing retirees stopped working at an average age of 58. Those who have not yet retired plan to work until age 68, on average, suggesting a disconnect between what workers want and need to do and what they will actually do. Almost half of pre-retirees did not have a formal retirement income plan. Both statistics reveal that Baby Boomers are in many cases not thinking seriously about retirement and are hoping that “something will happen”, like a government bailout of retirees. Why not? Everyone else seems to get a bailout.

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We’re seeing another aspect of the Baby Boomer syndrome: whatever stage of life baby boomers are in, there are massive resources created and applied to meet their needs. There are now many organizations, both commercial and educational, dedicated to the issues arising out of the impending retirement of this generation. For example, Boston College has a Center for Retirement Research (http://crr.bc.edu). Another organization, the National Endowment for Financial Education, doesn’t focus solely on retirement, but has resources, including its Smart About Money web site and its Nefe Digest, that offer valuable advice about retirement (www.nefe.org).

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The American Association of Individual Investors has an interesting article on retirement myths on its web site: www.aaii.com/features/retirementplanning.cfm. It lists some misconceptions people have about what they will do in retirement. Here are a couple of them.

One is the idea that only men retire, that women, especially those who haven’t worked outside the home, just keep doing what they were doing. Not true. Everyone needs to plan for retirement. Another myth is that retirement is easy, because it’s just the absence of the problems experienced in the working world. Again, not true. Here’s a third: it will cost a lot less to live in retirement, for a variety of reasons that usually don’t pan out. As we’ve said a few times, retirement takes some thinking ahead, to avoid financial surprises and a crushing sense of boredom and loss.

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We’ve written before about the number, which is the amount you’ll need for retirement and the title of a book on the subject. There is a new advertising campaign from ING on the subject, with a web site to assist in determining the number: www.ingyournumber.com. It’s an interesting calculation process, but there are others, at www.bloomberg.com and www.moneycentral.msn.com. I tried all three (and there are many others), and they produced about the same number for me. I wouldn’t rely entirely on them, but they are a good starting point for planning. Your own number is probably a moving target, and it takes into account specifics of your financial situation, such as pensions you or your spouse might receive, plans to work part-time after initial retirement, etc.

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While we’re working, health insurance is a relatively simple thing: most of the time, our employer provides it. It might be complicated, but we know where the rules are, and there’s usually someone at the office who can help us. But post-retirement health insurance is a different matter: we’re on our own. The National Association of Insurance Commissioners (www.naic.org) has issued a list of 10 tips to consider regarding health insurance after retirement, and it would repay careful review. Here are a couple of them:

• Plan ahead. If you plan to retire at 65, learn the options available under Medicare. If you plan to retire before 65, learn your options for covering the gap.
• If you do retire early, find out the rules of the insurance continuation program known as COBRA.
• When considering Medicare options, pay close attention to the new prescription drug plan available under Medicare.
• Consider buying long term care insurance to cover stays in nursing homes and assisted living facilities.

Post-retirement health insurance is a very important matter, and the people who get the best results will be those who shop around and get independent advice on what to do.

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The use of prenuptial agreements is becoming more frequent, especially in the case of second marriages where there are children from the first marriages. Here are three simple things to remember when considering a prenuptial agreement:

• Start the process well before the planned wedding. Leaving the prenup to the last minute is sure to make the wedding a much less happy occasion.
• Disclose all assets that each party has. The failure to make a full disclosure is the basis most often used for attacking prenuptial agreements.
• If one or both parties are giving up rights in qualified retirement plans, the prenuptial agreement should bind the parties to waive their rights and to file the necessary papers with the plans after the parties are married. A waiver of pension benefits is valid only if it is made or confirmed after the wedding.

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