When it comes to estate planning, the traditional way of doing things has been for advisors and lawyers to work with clients to plan for the transfer assets to the most immediate, relevant beneficiary.
Typically, that’s been the surviving spouse, then children and grandchildren. However, things change and those things include the birth rate. In 1960, the average birth rate per American woman was 3. 65. That’s down to 1. 66 today. Alone, that’s clearly relevant in the estate planning conversation because today’s clients are likely to have fewer children than their predecessors.
Speaking of the declining birth rate, data indicate the number of people in this country 50 years old and younger without offspring is rising. Add to that, many of the couples in that boat see little chance of their status changing, meaning advisors are going to be working with more couples in the years ahead that don’t kids, let alone grandchildren.
There’s the double income, no kids (DINKs) crowd that willfully choose that lifestyle and then there are couples that would like to be parents but, for a variety of reasons, aren’t. For advisors, the reasons why couples aren’t parents isn’t material, but developing appropriate estate planning strategies. Read on for some related tips.
Where Does the Money Go?
In some cases, a client or couple without children can be easy to estate plan for because they may simply want to bequeath their assets to a niece or nephew. Easy enough. However, that doesn’t apply to all childless clients.
Advisors also need to account for the distinct possibility that because these clients do not have children, they might have more money their counterparts that are parents. The parents out there know that having kids is expensive. Said another way, DINKs may have substantial assets and a desire to more with that capital than simply leave it all to a niece or nephew. Charitable remainder trusts are one idea to for advisors to discuss with clients that are not parents.
“The donor receives an immediate charitable deduction based on the present value of the cash or other property that is transferred to this irrevocable trust,” notes Austin Jarvis of Charles Schwab. “The donor also receives an income stream from the trust for years or for life, and a designated charity receives the remaining assets upon the donor's death. ”
For childless clients in the ultra-high-net-worth category, setting up private foundations is an avenue worth exploring. Those foundations, which can bear the client’s name, can make donations to qualified charities or setup scholarships, meaning the client can leave a lasting, positive legacy. Donor-advised funds are another idea and one more applicable to a broader set of clients.
“The donor makes an irrevocable, tax-deductible contribution of cash, securities, or appreciated noncash assets; the donor can invest those funds for future potential growth and recommend grants to qualified 501(c)(3) charities at any time,” adds Jarvis.
The Logistical Side of Heirless Estate Planning
Getting estate planning right requires some element of being proactive on the client’s part, but that’s especially true of folks that don’t have children. In conversations with DINKs or single clients without children, advisors should impart upon them the importance of the blocking and tackling side of estate planning.
That includes going over less glamorous logistical issues, such as establishing a living will and naming powers of attorney for finances and long-term healthcare. Advisors should also help heirless clients with identifying an estate administrator.
“An administrator will handle probate court proceedings, distribute your assets, manage the sale of your property, and notify your banks and credit card companies of your passing (which can help protect the deceased—and hence the estate—from identity theft). You could choose an accountant, an attorney, a financial planner, or even a professional executor, if available in your state,” concludes Jarvis.
