Who Gets a "Negative Inheritance" and Why?
On April 21, 2008, the Lancaster Intelligencer Journal published an article by Patti S. Spencer, Esq., entitled Will you receive a 'negative inheritance?'.
She addresses an unwelcome, but growing, situation not often discussed in estate planning -- more parental debts borne by beneficiaries than assets remaining to pay them. With the costs of heath care and long-term care both escalating, a "negative inheritance" is a possibility for many "middle-class" offspring.
This problem has been discussed recently in publications & postings. For example, see the posting, dated March 24, 2008, on Elder Law Issues, by the Phoenix, AZ law firm Fleming & Curti, PLC, entitled Some Seniors Leave “Negative Inheritance” For Their Children:
What is a “negative inheritance?” It is what happens when the amount your children pay to provide for your care exceeds what they will inherit. * * *
Media attention has recently focused on this concept of "negative inheritance," with articles from The Wall Street Journal and MSN touting the phrase. Other attention has come from online radio and, not surprisingly, the long-term care insurance industry.
One of the better articles comes from our friends at Oast & Hook, a Virginia law firm well-known nationally for its advocacy in elder law and special needs planning * * *. [Some links have expired.]
That referenced Wall Street Journal article, entitled "When Inheritance is Negative", by Marshall Eckblad, was published on January 22, 2008. Various blogs had mentioned it after publication. Its free link has expired. However, I found it posted in PDF format by The Strategic Counsel here.
This concept of a "negative inheritance" is also the subject of that recent, interesting article by Patti S. Spencer, which I repost.
"Negative inheritance," a term coined by Laurence Kotlikoff, a professor at Boston University, describes the situation when the costs to children of caring for aging relatives outstrip any gifts or bequests they might receive in return.
A large portion of baby boomers find themselves becoming the caregivers for their parents. Many of these caregivers want to care for their parents and are pleased to be able to help, but it takes a huge financial and emotional toll.
They are called members of the "sandwich generation" — sandwiched between the often conflicting demands of raising and educating children and caring for aging parents and other relatives. Almost three in 10 of those ages 45 to 64 with unmarried children under 25 in the home were also caring for a senior. About 20 percent of workers 45 and older provide financial support to a parent. About 33 percent of workers 45 and older with a grown child over age 25 pay rent or provide housing for that child.
Providing financial help for both children and parents often means delaying retirement. According to a survey conducted by Brightwork Partners for Putnam Investments, 42 percent of those supporting their parents said they'll work in retirement as a result, while 26 percent said they'll delay their retirement. Thirty-five percent of retirees have returned to the job market, according to the survey. A year ago, the figure was 29 percent.
What to do? Financial planners recommend a combination of family dialogue, long-term care insurance and proactive management of aging parents' remaining assets. Family dialogue — what's that? That means actually talking about plans for the future with your parent and siblings — something that for many families is very hard to do. Family dynamics around "money talk" are very difficult. If you are one of the parents be a grownup and start the conversation yourself. No one knows what the future will bring. Discuss various possibilities. And don't start out by saying, "You'll never put me in a nursing home, will you?"
For those boomers who are at a higher risk of supporting and caring for their aging parents, determining the parents' financial health and finding out what plans they have, if any, is important. If the parents are likely to run out of money, the first priority is to buy long-term care insurance.
If the parents can't or won't pay for it, the children should. It makes much more financial sense than paying for care or sacrificing career and income when the time comes. The long-term care insurance has to be purchased before the injury or illness occurs. The parents need to be relatively healthy to qualify for a plan.
When parents can't qualify for long-term-care insurance, it becomes even more important to manage their assets and make plans for the future.
It may be necessary to sell the family home. You might try to get help from other adult children. Your parents may be able to borrow against life insurance policies or sell them on the secondary market. Perhaps your parents should take out a reverse mortgage on their home.
The cost to an adult child of caring for parents is not necessarily an out-of-pocket payment of Mom and Dad's bills. Instead, the child may have to stop working to care for elderly parents or work part-time. Being stretched thin may affect performance and advancement on the job.
Caring for an elderly relative itself can be a part-time job, if not a full-time job. The mental, physical and emotional pressures can be devastating for the caregiver.
I agree with Stephen W. Follett, Esq., who says, "I dislike the term 'negative' inheritance'. I believe that it demeans the legacy of loving parents. Similarly, it diminishes the return of love by children.
"Caring for parents is a labor of love. Inheritances are not a right. Everything wrong with this term begins with the underlying premise that we should expect a financial inheritance from our parents."
In other words, what is negative about caring for your parents? Recognize that you have no right to an inheritance.
How different this is from the attitude of another planner who asks, "What is the Black Death of a financial plan?"
The answer: "It's your parents."
