Estate Planning and Trust Management for a Brave New World | Part 2 of 4

“Estate Planning and Trust Management for a Brave New World: It’s All in the Family, What’s A Family?” is a four-part special:

• Part 1: An introduction and overview to lecture,
• Part 2 (this podcast): Understanding of how changing demographics and multiple generations impact the current world of estate planning and trust management,
• Part 3: How trusts need to evolve to serve new family dynamics,
• Part 4: A look at longevity trends and its implications.

Video of full lecture with slides. 

Transcript/Show Notes

This is Susan Snyder, ACTEC Fellow from Chicago. Welcome to a special lecture featuring Hugh Magill, also an ACTEC Fellow from Chicago. Hugh presented the annual Trachtman Lecture in front of a live audience at ACTEC’s annual meeting in March of 2018. We have broken his 90-minute lecture into three sections:

• First, an understanding of how changing demographics and multiple generations impact our new world of estate planning and trust management,
• Second, how trusts need to evolve to serve these new family dynamics,
• and Third, a look at longevity and its implications.

I was introduced to this family six or eight years ago by the Chairman of my company. The husband was a retired CEO of several major American corporations. He was divorced and remarried. His wife was a successful professional. They look like a fairly typical, blended American family, three children of the first marriage, two children of the second. And on the family tree, they look like a two-generation family.

Demographically, however, it’s a four generation family owing to the differences in the eras in which the members were born and raised. Family structure presents some challenges in estate planning, the allocation of financial wealth which we’ll explore a little bit later. This mixture of four generations, a traditionalist, a boomer, Gen Xers and millennials in one family is one of several encounters that led to the research that forms the foundation for today’s presentation.

General Attributes

So let’s turn first and consider the attributes of the generations whom we serve as clients today, from the Greatest Generation, largely shaped our traditional estate planning paradigm, to millennials who are reshaping expectations and norms in a number of areas. The attributes and characteristics that I will share this morning of the generations are drawn from many sources – the Pew Research Center, an invaluable source of insight to these things in Washington, D.C., Paul Taylor’s work The Next America, research data from the Census Bureau and the National Institutes of Health. They are, of course, broad generalizations, and I hope that none will take umbrage if some seem far off the mark where others strike a little too close to home – they are never fully accurate.

We are going to be looking at actually five generations of Americans from the GI and the silent generations near the top of this sometimes group together and so-called traditionalist down to millennials. Alexis de Tocqueville said in his seminal work Democracy in America, that each generation is a new people whether or not though there is such a thing as a generational persona is debated by sociologists but in the view of some scholars, there are four archetypal generational personas, and each of these will be attached to each of the four generations.

So let’s turn and look at the first generation, the traditionalists, the grouping of the greatest and the silent generation whose very lives were shaped and footed in the depression in World War II. The seminal question which I pose for each of these generations begins with theirs, “where were you on D-Day?” and “how did you learn about D-Day?” You likely learned about it gathered in your living room around a wooden family radio.

A third of these Americans lived on farms and many in multigenerational households. Spousal and parent-child relationships were narrowly defined. Tom Brokaw, the author of The Greatest Generation said of this group, “they were people of towering achievement but modest demeanor.” Their character traits include duty – to nation, to Church, to job. Institutional commitment was very high to marriage and to employers and respect for institutional authority was also very, very strong. Their leadership and decision making style though was paternalistic and control oriented, we will see why a little bit later but it has shaped this generation’s approach to estate planning.

I turn next to my own generation, the boomer generation. It has been entering retirement for the last few years at the rate of 10,000 individuals per day, 10,000 boomers turn 65 every single day through now till 2030. It’s a group referred to by one commentator without much affection as the Woodstock Generation, this was our coming out party. He describes them and I will quote “They are not thrifty, they are uncomfortable with accountability, they are inclined to blame others for their own mistakes but they are technologically literate, they stand to inherit vast wealth, and they know how to Google A.I.R.S Inc..” The aging of this generation will have a profound effect on our population demographics. The United States Census Bureau data indicate that in 2000, there were 16.3% of our population below the age of 65. By 2025, that percentage will raise to 24.2%. This generation is shaped by the 1960s turbulence, by the Vietnam War and by tragic political events including a presidential assassination that shaped their sense of who they were. They learned about it not on a radio but in a television, often in a grainy black-and-white picture. The parental model for this generation is evolving. The burgeoning institutionalization of food preparation, both canned and frozen food, allow women modest increases in time and autonomy. Children still know that adults are in charge but strict obedience is giving way to accommodation, particularly by the 1960s. Some of their character traits include some of these features, and political commentators, social commentators, some of them attribute today’s highly polarized political environment to our upbringing. We choose sides. When we grew up, there were communists and capitalists. There were good guys and bad guys. Institutional authority enjoyed a brief period of prominence, but it was utterly and sometimes violently rejected in the turbulence of the 1960s and then re-embraced as boomers understood that institutions in a capitalistic society could mean you could make money.

Parental control was giving way to consensus. Generation X, Gen X, is the first generation to grow up increasingly in two-career households. Sadly, dramatic increases in divorce rates are one of their defining characteristics. It’s the first generation where technology of the binary type begins to take a foothold in the household. It’s also the first generation of latchkey kids, owing to the fact that their households were dual-income households. They came home, they let themselves in the house, they went to the fridge, got a gallon of milk, they got a cookie, and they sat down. And when they looked at the milk carton, what did they see? They saw a picture of a missing child. Rapid technological change and significant changes in the relationship between parents and children lead to the fact that adults must now start to learn from their children.

The character traits of this generation, again generally speaking, include skepticism and suspicion of organizations, government, institutions and authority. Their decisions rest upon a kind of functional and necessary independence and pragmatism. And having watched their parents’ work-life imbalance, the issue and the role of work in relationship to life is very important for this generation.

Let’s turn now to the millennial generation. I need to express a caution. I am the father of three, I am an employer of more, and so I maybe perhaps subject to a selection bias, but the millennials are a remarkable generation and shaped by extraordinary forces. They witnessed 9/11; they helped to elect President Obama; they are the first generation of so-called digital natives; and the first generation to grow up in a much broader array of household structures. While both of their parents typically worked, greater flexibility and work arrangements meant that millennials were less likely to be latchkey kids raised by parents who are described, and I quote “as having biological instincts in overdrive” leading to the other moniker, “helicopter parents.” College deans sometimes say that the hardest part of freshman orientation now is not getting the students to stay, it’s getting the parents to leave. The character traits of millennials include high self-esteem. Sometimes we have heard the phrase that everyone of them got a trophy but I think it’s important to point the trophy finger back at us because, of course, it was boomers who were giving them the trophies. They have an albatross of student loan debt, and they have higher levels of unemployment since the economic turbulence of 2008.

A retired chief economist Paul Kasriel once was asked, ‘Paul, how do you define full employment?” Paul paused and he said, “That’s when both of my kids have a full-time job”. They are also described as a post-racial, post-gender generation. We will look at that in just a little bit more. So how long are these generations likely to live? Here we see the longevity of the United States population stretching back to 1900. Early on reductions in infant mortality and then accompanied by the introduction of antibiotics in the 1930s and the 1940s followed by improved diets, lower levels of smoking have led to the place that wherein 2015, an American female can expect to live to the age of 81.2, an American male 76.3. And in a fascinating comparison of the last 118 years, a 20–year-old today is more likely to have a living grandmother than it was for a 20-year-old to have a living mother in 1900.

Family Demographics

let’s turn and begin to look at some of the family demographics that are the result of these generational attributes. The first is a dramatic change in the composition of U.S. households. The top blue line represents the number of married couples. It was nearly 80% of households in the 1950s, and it has recently dipped below 50%. The fastest growing segment in our population is unmarried, heterosexual couples, either without children, the top blue section or with children. Today, adults between the ages of 18 and 29, 18% of them are married on average but in 1960, that same group of 18 to 29 year olds, 59% were married. The number of cohabiting adults who are age 50 and older has increased 75% in the last 10 years, drawn from Pew Research’s data. Men’s and women’s marital status reflected decreasing preference for marriage. Here we see the top line is those who are married; the middle, the yellow line never married; orange divorced, and the blue at the bottom, widowed. Same data for the cohort of women. If and when they do marry, both men and women are older typically. There is a correlation between educational level and marriage postponement but you can see how the age at first marriage tends to be rising certainly over the last 30 or 40 years.

Young marries today are far more likely to marry someone of a different race and ethnicity, and this trend tends to skew westward in the United States to the western states, and particularly in Hawaii, which has the highest rates of intermarriage. But out of all of this, sociologists would suggest that the paradigm of marriage is changing in fundamental ways. It’s increasingly deferred or even bypassed by heterosexual couples but embraced by same-sex couples following recent United States Supreme Court decisions. For traditionalists and boomers, marriage is seen as a cornerstone experience. After dating, couples married. They then lived together and then they had children and finally may have achieved some level of financial stability. But for Gen Xers and millennials, marriage is increasingly a capstone experience. They date, they are likely to live together, they may attain some financial security, then they have children, and then marriage might follow that again as a capstone experience.

A teenager in the United States today has less chance of being raised by both biological parents than in any other country in the world. While the United States Supreme Court has continued to recognize marriage as both the basic civil right and an institution central to our human existence as seen in these two quotes, first from the case of Loving versus Virginia; the second, the more recent, Obergefell versus Hodges. There is a growing group of sociologists and a few law professors who regard marriage as a declining and indeed, in their words, an unimportant institution but even the American public is moving towards this view. 2010, a Pew Research’s survey, 39% of Americans and 44% of millennials say that marriage is becoming obsolete. This prospective has gained ground notwithstanding the extraordinary deference too and benefits of marriage legally.

On this chart, you see a quotation actually from Obergefell versus Hodges, Supreme Court cited 14 of these benefits in its 2015 decision. And in 2004, the United States Government Accountability Office indicated through a research study that there were 1138 provisions of Federal Law which treated relationship between two people who are married differently from any other relationship. 

Changes in Family Structures

So how are these generational attributes in relationship trends affecting family structures? Well, here is a snapshot of what a prototypical American family looked like statistically in the 1950s. A married, heterosexual couple with three biological children, ah, but wait, it’s actually not that family, it’s a contemporary family. This photo appeared in a recent issue of Costco Connection magazine, and I must admit, I am a card carrying Costco member. But in the era of internet dating apps, I didn’t know that many were still meeting their spouse at the warehouse club, and these are some of the things that they found. And perhaps most importantly, the wife is quoted in the magazine saying, she found her Kirkland Signature brand husband at Costco.

Notwithstanding Costco’s delight with such committed customers, a married couple with three children, the 1950s most common, is actually now 7th on the list of American households. What you see here is a visualization of a fascinating study done in 2016 based on the Census Bureau’s American Community survey. And in that, this study identified 10,276 different household types in the United States. First of them and the most prominent is a single individual; second, a married couple. These are going up from left to the right and top. Third, a married couple with one child and fourth, a married couple with two children. Somewhere buried in the data is a retired colleague of mine, Don Oomens who was a Federal Estate Tax Return Reviewer, some of you may have known Don. Don and his wife had 17 biological children. I think that’s down there perhaps at 10,275.

Here we see a traditionalist’s family. The Greatest Generation had traditional family structures. They had three children typically, and if divorce occurred in traditional families, it was usually after the children were raised. If there was a so-called second act, it was often by the husband who is statistically likely to marry a younger spouse. This phenomenon was one of the rationales behind the introduction of so-called Qualified Terminable Interest Property or QTIP Trust. The mortality statistics indicated their husbands would generally predecease their wives and husbands feared that their wives upon remarrying would divert family assets to the new spouse; but for the traditional generations, statistics didn’t prove out the fear. For widowed women, 8% of them on average remarried, and it was generally eight years after the loss of their first spouse. For men, 20% remarried but they only waited four years to do so. For boomers, earlier divorces have been more common. They hold more salutary view about the impact of divorce on children. There was less social stigma. A frequent result is remarriage and blended families. One-sixth of American children are growing up today in blended families, and 40% of Americans have one or more step-relatives.

United States Supreme Court’s decision 2013 US v. Windsor striking down DOMA; 2015 Obergefell versus Hodges guaranteeing the right to marry assured same-sex marriage for all Americans with the possibility of second parent adoption of children born to either spouse. Use of marriage and family structure have actually undergirded a trend, a new trend toward so-called three parent families where following a divorce, a second spouse can be granted parental rights in some states either as a so-called de facto parent which recognizes, for example, it’s recognized by statute in California or even third parent adoption where the former spouse, the biological parent does not need to relinquish parental rights. This status is recognized judicially, at least in Minnesota and the Province of Ontario. This trend was chronicled in a New York Times article in 2012.

Trends in artificial reproductive technology also make single parenting possible. There is a support group founded in New York in 1981 by a woman named Jane Mattes called Single Mothers by Choice. Some though, some single parents are choosing to enter into so-called co-parenting arrangements. A website founded in 2012 called Modamily helps match people interested in co-parenting, and last count, it had over 20,000 members. One proponent, a child psychologist George Sachs says and I quote, “This co-parenting process removes many of the mysteries of how your child will be raised”. Another Jane Mattes, the founder of the website Single Mothers by Choice says and I quote, “It’s really difficult to co-parent when you are madly in love with somebody”. So it’s more complicated when you don’t have that bond. And here is a man and a woman who met on Modamily, they are chronicled in a New York Times office in 2013 and at least as of that, timing of that article, I don’t know whether or not they went ahead to co-parent and sire a child together.

Striking advances in artificial reproductive technology now permit banking of reproductive material, making even posthumous reproduction possible. Storage of gametes and embryos usually undertaken as either a precautionary measure in advance of disease or military service or perhaps in a connection with some other phenomenon lead to the possibility of posthumous reproduction. State laws are by no means uniform regarding the inheritance rights of these posthumous children. I need a pause before showing the next slide by telling a story.

I was with Stephen Lash, Chairman of Emeritus of Christie’s a couple of years ago as I was starting this research. I was telling him a little bit about this, and he said ‘let me tell you a story’ and a friend of Stephen who was a headmaster of a K through 8 schools somewhere in the Northeast had a habit in the fall of welcoming the incoming class and sitting down with each of the children individually to introduce themselves to welcome that child into the community. And one of his questions always was ‘tell me a little bit about your family’ and so with one little girl, I will call her Suzie, he said, ‘Suzie, do you’ve any siblings,’ and she said ‘no, but I have five diblings’ and he thought, “what is a dibling?” But of course, he didn’t say this to her. So later in the day, he approached her teacher and said, “Suzie has five diblings, what’s a dibling?” Here’s what a dibling is. It is a descendent of one male genetic donor who is then related by blood, either half blood or whole blood, to a number of other siblings. They get together for play dates, they share birthdays, they may meet at parental anniversaries, who knows. Chronicled in the New York Times article again from 2012, this one about the process of discovering whether or not you have donor siblings or diblings.

New family structures with children are enabled, in part, by extraordinary advances in reproductive technology. There are presently 15 variables including in the last 18 months the possibility of using a so-called hybrid egg produced with something called spindle nuclear transfer technique. So there has now been a child born in the United States who is genetically a descendent of three parents.

Here are the most recent statistics in the United States. I am updating those in Bruce Stone’s excellent materials from Heckerling a couple of years ago. There are about 230,000 artificial reproductive cycles each year leading to 61,000 live births, 73,000 infants because of the preponderance of twins and triplets with these methods. There are one million embryos estimated to be in storage in the United States, and 1.5% of children are born annually conceived by artificial reproductive technology. And, of course, where there is a new technology, there’s going to be a new website and a new capitalist opportunity.

Here I show a California company called California Conceptions Donor Embryo Program, which has an embryo creation clinic. They purchase genetic material from donors. They then create embryos, and they offer these for sale to individuals for $12,500 for three tries and a money back guarantee. This diversity of American family structures leads Paul Taylor, the author of The Next America to say ‘families now come in all shapes, sizes and constellations.’ Here then let us step back and say, how do they array themselves in the United States. A third of them, 31% are households without children; 35% are traditional, heterosexual, married couples with children; 34% are modern households and in a striking survey response, 70% of that latter group, 70% of modern families when surveyed say that when they approach financial planning, estate planning and financial services, they expect to receive solutions that are suited to the top two groups but not to their own.

This concludes podcast Part 2 of 4 in our Special ACTEC Trust and Estate Talk. Please tune in for our next episode in the “Estate Planning and Trust Management for a Brave New World: It’s All in the Family, What’s A Family?” series, which will discuss how trusts need to evolve to serve new family dynamics.

This podcast was produced by The American College of Trust and Estate Counsel, ACTEC. Listeners, 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. The material in this podcast is for information purposes only and is not intended to and should not be treated as legal advice or tax advice. The views expressed are those of speakers as of the date noted and not necessarily those of ACTEC or any speaker’s employer or firm. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. The entire contents and design of this Podcast, are the property of ACTEC, or used by ACTEC with permission, and are protected under U.S. and international copyright and trademark laws. Except as otherwise provided herein, users of this Podcast may save and use information contained in the Podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing, of this Podcast may be made without the prior written permission of The American College of Trust and Estate Counsel.

If you have ideas for a future ACTEC Trust & Estate Talk topics, please contact us at ACTECpodcast@ACTEC.org.