Navigating Generational Divides

5 MINUTE READ

Insights from research by Hugh Magill, executive vice president and chief fiduciary officer at Northern Trust

To better serve multiple generations, estate planning needs to expand beyond financial considerations.

The age span of families living and managing wealth together has been rising for many decades. To understand this trend, consider that today, Americans’ life expectancy has risen by over 30 years since 1900. Also consider that the number of adults who have remarried has increased threefold since 19601 and that a 10-year age gap exists in 20% of new remarriages.2

The expansion of households and families across multiple generations raises a host of issues and opportunities for estate plans. One primary example is the need to bridge the generational divide that exists between grantors and beneficiaries. While younger generations seem increasingly inclined to seek meaning and purpose behind their inheritances, traditional estate plans rarely provide such insight. To deliver it, older generations should approach estate planning more holistically, with a focus on communicating the basis for their intentions both before and after they die.

Life expectancy has risen by over 30 years since 19003

Chart: Life expectancy has risen by over 30 years since 1900 Chart: Life expectancy has risen by over 30 years since 1900 Chart: Life expectancy has risen by over 30 years since 1900

Generalizations about generations4

The attitudes, behaviors and preferences of younger generations have changed significantly from those of the generations that shaped traditional estate planning models.
Chart: Generalizations about generations Chart: Generalizations about generations Chart: Generalizations about generations

Remarriage has become much more common5

4 in 10 NEW MARRIAGES INVOLVE REMARRIAGE
% of new marriages in 2013
Chart: Remarriage has become much more common Chart: Remarriage has become much more common Chart: Remarriage has become much more common

Remarriage age-gaps are larger5

% of new marriages, by age difference of spouse
Chart: Remarriage age-gaps are larger Chart: Remarriage age-gaps are larger Chart: Remarriage age-gaps are larger

A blended, multi-generational family

With large age gaps in remarriage, it is not uncommon for a blended family of spouses and children to cover four generations
Chart: A blended, multi-generational family Chart: A blended, multi-generational family Chart: A blended, multi-generational family

Methods for navigating generational divides in estate plans

  • Consider adding a statement of wealth transfer intent (SOWTI) to your estate planning documents. As a personalized declaration of your wealth transfer goals, a SOWTI is the heart of your trust or will. It provides a unique intention that is tied to your personal history, values or perspectives and thus overcomes the traditional reliance by trustees and beneficiaries on making inferences about the overarching purpose of your wealth. This clarity has become increasingly relevant in an environment where tax minimization goals have become less critical for many individuals under current law.

    Sample goals that might be found in SOWTIs include encouraging entrepreneurialism, promoting philanthropy, or preserving family values and traditions. While many would agree these types of higher level objectives communicate an invaluable part of one’s legacy, they have rarely been included in traditional estate plans.

    For more information about SOWTIs, see The "Goal Standard" of Estate Planning

  • Select trust distribution standards thoughtfully.

    Trust provisions that provide trustees guidance regarding what types of distributions can be made have historically been relatively narrow in scope for tax reasons. Support, maintenance and health are among the most common standards, whereas broader purposes, such as comfort and best interests, are used less frequently.

    The narrowness of these standards is becoming increasingly incongruent with longer trust terms and generational shifts in philosophies and priorities. For example, carefully consider whether you want distributions to your children and grandchildren to enable more aspirational goals, such as global travel, professional education or social impact. Or more broadly, consider giving your trustees greater distribution flexibility so that they can adapt and respond to the changing needs of your beneficiaries.

Moving Towards Broader Trust Distribution Standards Makes Sense For Many Families

Discretionary Distribution Standards

Chart: Moving Towards Broader Trust Distribution Standards Makes Sense For Many Families Chart: Moving Towards Broader Trust Distribution Standards Makes Sense For Many Families Chart: Moving Towards Broader Trust Distribution Standards Makes Sense For Many Families
  • Focus on multiple aspects of wealth.

    Historically, estate planning has been predominantly focused on the financial aspect of legacies. But when families think more holistically about their wealth, their planning becomes more holistic, better serving the family as a whole as well as heirs searching for greater meaning.

Charles W. Collier offers a framework for this type of approach in his book Wealth in Families, where he expands the definition of wealth to include four quadrants: financial, human, intellectual and social capital. Consider adopting a similar approach with your family to move the conversation from “how much and when” to answering some of the most fundamental questions about your goals and values.

Redefining Family Wealth

Chart: Redefining Family Wealth Chart: Redefining Family Wealth Chart: Redefining Family Wealth

Generational shifts in attitudes, preferences and behaviors are reshaping many things in the United States. The estate planning process should be no exception. Work with your family and advisors to adopt a model that can bridge differences and communicate your wealth’s purpose for many generations to come.

  1. http://www.pewresearch.org/fact-tank/2014/12/04/tying-the-knot-again-chances-are-theres-a-bigger-age-gap-than-the-first-time-around/
  2. http://www.pewsocialtrends.org/2014/11/14/chapter-4-marriage-and-remarriage-among-newlywed-couples/
  3. Centers for Disease Control and Prevention. Life expectancy at birth, All Races, Both Sexes.
  4. Pew Research Center, “Millenials In Adulthood: Detached from Institutions, Networked with Friends.” March 7, 2014; Taylor, Paul, The Next American, New York: Public Affairs, 2015; Brokow, Tom, The Greatest Generation. New York: Random House.
  5. Pew Research Center analysis of 2013 American Community Survey, 1% one-year sample of the U.S. population from the Integrated Public Use Microdata Series (IPUMS).
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This information is not intended to be and should not be treated as legal advice, investment advice or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.