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Baby boomers facing unique retirement, estate planning issues

With advances in medical technology and improvement in health care, people are living longer.

The increase in life expectancy has placed the baby boomer generation in the unique position of having to take care of their parents while simultaneously preparing for retirement and planning out what to leave for their children to inherit.

"You see baby boomers who should be taking care of themselves financially are having to take care of their parents," said San Diego attorney Andrew Pharies, an estate planning partner with DLA Piper.

As baby boomers comprise this new, so-called "sandwich" or "squeeze" generation, they face many estate planning challenges that previous generations never had to confront.

"The baby boomers are an increasingly important segment in any estate-planning consideration, primarily because they're retiring later, living longer and have greater needs," said San Diego's David Dorne, a senior partner and chairman of Seltzer Caplan McMahon Vitek's business department. "Frequently they have extended families, sometimes multiple families, and so the process of someone preparing estate planning for a baby boomer, especially an aging baby boomer, is more complicated than it's ever been."

He said clients typically come in about the time they retire, approximately age 65, to begin laying out their trust and estate plans. But now, those clients could be looking at a long retirement and need to plan accordingly. Part of that means coming in on a regular basis to update the executor and beneficiaries as circumstances change.

"The common problem I see is that with estate planning, a lot of people think, 'OK, if I do it once, I'm done," said Laura Lamb, who is Of Counsel at Seltzer Caplan and works with Dorne. "I recommend to my clients to come see me every five years."

"Our contemporaries are the people we know the best to take care of our estate," Dorne added, "but frequently, by the time the need comes, our contemporaries are elderly and can't handle those kinds of things."

The representatives who will be making health care decisions need to be constantly checked. Children who once were too young to be given any responsibilities may be grown and now added as decision makers.

"As an attorney, we still tell clients to make sure they update their estate plan," said Riverside attorney Craig Marshall a partner of Best Best & Krieger. "That it's not just a death issue, but it's an incapacity issue. Who should be making decisions for us?"

Baby boomers also are stuck in an uncertain tax environment. Currently, the estate tax exemption is $5 million, but that is scheduled to be reduced to $1 million on Jan. 1 unless there is congressional action.

"This uncertainty prevents people from being able to plan effectively because they don’t know what they're planning for," Pharies said. "Where baby boomers are now, that's when you begin the process of wealthy transitions. Unlike their parents, they don’t have a solid set of laws on which to plan, so they're planning toward the next deadline. That's not good planning."

Pharies said the estate tax became a political football in the 1990s, when the exemption was $600,000. For the first time since the exemption was introduced, politicians began to talk about eliminating it.

"As the economy started to get bigger and better in late 1990s, you had more wealthy people in America," he said. "The estate tax was low and applying to many more people."

Members of the baby boomer generation also are unique in that they don't simply want to leave their assets to the next generation with "no strings attached," according to Nancy Henderson, a partner with the San Diego firm Henderson Caverly Pum & Charney LLP.

"They're definitely concerned about creating a sense of entitlement, of not having to contribute to their own well-being," she said. "Most of these people grew up in an environment where you could accomplish anything. This is the generation that grew up watching men on the moon and the creation of the tech era. The baby boomers feel a burden of leaving their estate in a responsible manner."

There are ways to structure trusts that give beneficiaries incentive to be productive members of society.

Making sure children who stand to inherit a large sum of money know how to be financially responsible also is important to baby boomers, said Seltzer Caplan's Dorne.

With people living longer, baby boomers are not getting a bump in wealth that their parents experienced around age 40 or 50, according to Henderson. The trend will continue for the next generation, but she said baby boomers can design their plans so their children can get some of their inheritance earlier.

Members of the baby boomer generation give a sizeable chunk of their estate away as well.

"They're educated, hands on and very involved philanthropists," Henderson added. "They expect a good return on the investment from the charities."

Still, the biggest challenge baby boomers face is living for today while planning for the future.

"With a population that's aging and living longer, and their children are living longer, there's this need to figure out an orderly way of transferring control to the younger generation without leaving yourself in a vulnerable situation financially," Dorne said.

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