AGING AND YOUR WEALTH - Merrill Lynch AGING AND YOUR WEALTH: THE MPORTANCE O LANNIN EARLY. 2 t ul...

AG I N G A N D YO U R W E A LT H Many families delay difficult discussions until a health crisis hits. But with life expectancy on the rise and the cost of long-term care steadily increasing, the time to start the conversation may be now.

CONTENTS

Introduction: The Importance of Planning Early ................................................... 3

The Eight Essential Elements of Planning .................................................................. 4

I. Starting the Conversation .............................................................................................. 6

II. Creating a Plan .......................................................................................................................... 8

III. Assessing Your Assets .....................................................................................................15

IV. Passing on Your Legacy ..................................................................................................18

V. The Challenges of Caretaking .................................................................................. 20

VI. Crisis Management and Sudden Death ........................................................... 22

VII. Preparing for Tomorrow Means Enhancing Life Today ................... 23

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AGING AND YOUR WEALTH: THE IMPORTANCE OF PL ANNING E ARLY

SSUES RELATED TO your family’s future health and wellness can have an impact on every aspect of your life. Addressing those issues sooner rather than later makes good sense. For example, having a

dialogue with your loved ones as early as possible to uncover gaps in your planning, and making sure your wishes are known and fully understood, can reduce everyone’s anxiety about what the future may hold.

A family health crisis of any kind, be it a catastrophic physical health issue, acute or gradual cognitive decline, or a death in the family, typically requires open communication and the sharing of key information so everyone can be on the same page and know what to expect. Not planning for the future and not sharing the appropriate information with family members and loved ones is a recipe for family conflict that can negatively affect your family’s financial resources and interpersonal relationships, and may result in the loss of planning options. Communication and preparation are key ingredients for executing a successful plan that relies on other people to carry out your preferences.

Communication and preparation are key ingredients for executing a successful plan.

Many families delay difficult discussions until a health crisis hits. But with life expectancy on the rise and the cost of long-term care steadily increasing, the time to start the conversation may be now.

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AGING AND YOUR WEALTH

The Importance of Planning Early

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Discussions should happen every three

to five years to reflect changes in

your family, your balance sheet and

your current wishes.

The mere act of thoughtfully preparing for this type of conversation with loved ones can be the most important step to achieving your goals and avoiding some of the pitfalls that can result from being caught off guard. It can allow you to examine what’s really important to you and to reflect upon how your wishes may affect your loved ones. One of the best ways to lay the groundwork for holding these discussions can be to enlist your financial advisor to help you map out the issues you have identified and together develop a strategy for sharing your ideas and concerns with your family. After input from advisors, people often determine the best approach is to have separate discussions with different family members, each tailored to that person’s capacity to fully appreciate the importance and gravity of putting a well-thought-out plan in place.

“Even the best advance health-care planning can come undone if you lack an understanding of your family’s financial resources and don’t have a sense of each member’s capacity to be involved in the process,” explains Michael Duffy, a wealth strategist at Merrill Lynch. “Your analysis might also inform your gift planning and estate tax planning. For example, making gifts or donations during your lifetime should only be considered if you have determined you will have enough resources to sustain your personal consumption and emergency reserve funds needed for the rest of your life.”

This guide is designed to help you engage in effective conversations with your advisors and loved ones. Remember, these types of discussions should happen every three to five years to reflect changes in your family, your balance sheet and your current wishes.

THE EIGHT ESSENTIAL ELEMENTS OF PLANNING

Don’t know where to start when it comes to planning for the financial future of yourself and your loved ones? The “Eight C’s” can help you identify opportunities and potential roadblocks in the planning process; effectively socialize the subject matter with your family; and incorporate your values and wishes into a sound long-term wellness plan and a long-lasting legacy.

1. Collaborate with your advisors, family members and loved ones to discuss your long-term goals and concerns.

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2. Consult with your advisors to make sure your health and estate planning documents are up-to-date and reflect your current wishes. It may be necessary to talk not only with your attorney and financial advisor, but with your accountant and insurance specialist as well.

3. Consider whom to name as your executor, trustee, guardian, health-care agent, and agent under your durable power of attorney.

4. Create a comprehensive list that includes a current balance sheet, health insurance policies, long-term-care policies, life insurance policies, and the contact information for your primary physician, lawyer, accountant and insurance specialist.

5. Collect all key legal documents as well as your financial and online information, and compile a list indicating where they are kept or stored, or who may be in possession of them—including but not limited to:

• Insurance policies

• Bank accounts and credit card information

• Mortgages and other lines of credit

• Titles, deeds and registrations

• Prior income and gift tax returns

• Online accounts and passwords

• Will, trust agreements, living will, health-care proxy and powers of attorney

• Safe-deposit-box keys

6. Concentrate on business-related issues such as management-succession planning.

7. Check all documents to ensure their accuracy.

8. Communicate, when appropriate, your desired goals to family members, loved ones and key advisors.

When planning for the future, it may be necessary to talk not only with your attorney and financial advisor, but with your accountant and insurance specialist as well.

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I. Starting the Conversation Many people fully embrace the planning process but do so privately. They may take action, but they do this without informing spouses or partners, who are then left in the dark until their loved one is sick. Talking about your wishes for health care and your estate can be challenging, and in some families, discussing issues involving mortality is taboo.

The reality is by 2030, when the last of the baby boomers has turned 65, one in every five Americans—or about 72 million people—will be an older adult.1 And though the current average life expectancy in the United States is 79 years, those who live to age 65 have a much greater chance of living another 20 years.

“One of the negatives of longevity is people delay the planning process because they assume they’re going to live a long time,” says Scott Cooper, wealth strategist in the Wealth Advisory Group at Merrill Lynch. “Yet the longer they wait, the greater the chance cognitive decline or an unexpected illness could compromise their ability to manage their own affairs or effectively direct another person to manage their affairs.”

Despite initial trepidation, many families who have had these conversations have had a positive experience and now feel prepared for whatever the future may bring.

What can happen if you don’t do any planning? To start, your actual wishes may not be carried out. You may not receive the medical care you want, and in some cases, the state in which you live could decide what type of care you receive and who is to inherit your estate.

On the flip side, planning now can be a positive, rewarding experience. It can help you focus on what’s really important to you and let you narrow down the seemingly limitless options available. Your planning can inspire others in your family to do the same and encourage them to have similar discussions and take similar precautions.

By 2030, when the last of the baby

boomers has turned 65, one in every five

Americans—or about 72 million

people—will be an older adult.

1 The State of Aging and Health in America 2013. Centers for Disease Control and Prevention, U.S. Dept. of Health and Human Services; 2013.

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As with other aspects of your life, there’s no one-size-fits-all approach to designing your health or estate plans. Each individual is unique, and therefore so is each event and thus each plan. That said, families should consider using the following information as guidelines to tailor their plans.

WHEN FAIR ISN’T EQUAL

Some of the most difficult planning choices

arise when deciding how to divide assets

among children. Even leaving equal amounts

could seem unfair in some situations.

Consider, for example, a Will that leaves

assets to two children, one of whom is a

high-earning business executive while the

other is a lower-earning teacher in a public

school. The teacher may resent the sibling for

receiving an equal share because the

business professional is in a better financial

position. On the other hand, the executive

might come to feel punished for her success

if she does not receive an equal share.2

“In Wills I’ve seen, on almost every occasion

when property is not left equally to children,

people put one sentence in the Will, and

unfortunately it’s ‘I have intentionally left an

unequal disposition,’ but there’s no further

explanation as to the testator’s reasoning,”

says Mitchell Drossman, national director of

Wealth Planning Strategies at U.S. Trust.

“There are several different tools you can use

to avoid leaving heirs with bad feelings as to

their inheritance. Perhaps the most simple

thing to do is have a discussion with your

children about your thought process. If having

this type of discussion during your life won’t

work for your family, consider leaving them a

letter to be read in conjunction with your Will,”

explains Drossman.

Transparency during the testator’s life

can be a double-edged sword, especially

if the testator changes his or her mind

over time. However, transparency at death

can help to alleviate potential conflicts

between your heirs.

While transparency is important when

communicating the intent and purpose of

wealth, wealth creators may not wish to

communicate the specifics of asset distribution

or the potential size of such distributions. Wills

often change over time, and revealing too much

can lead to unmet expectations; yet revealing

too little can result in hurt feelings or even

animosity toward other recipients.

2 “How a Will Treating Children Differently Can Still Be Fair,” The New York Times, 2016.

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Most fiduciaries will be asked

to protect your property and

to manage and distribute it

according to your written wishes.

II. Creating a Plan FIDUCIARIES TAKE THE LEAD

You can take specific steps to help ensure your health and financial wishes are carried out following your incapacity or death by naming an individual or institution as your fiduciary. A fiduciary has a legal obligation to carry out certain tasks on your behalf. They are held to a high standard of conduct and can be held personally responsible for breaching a duty. Most fiduciaries will be asked to protect your property and to manage and distribute it according to your written wishes. They have a duty of loyalty to you, which means they must not have any conflict of interest or self-dealing.

Fiduciaries can be used for health as well as financial purposes. For example, you might name a fiduciary to act as your health-care agent should you suffer a temporary or permanent disability and lose the capacity to make critical decisions. You might also name an agent-in-fact under a durable power of attorney to make business decisions for you if you are unable to do so because of an illness.

The choice of fiduciaries is one of the most important decisions you’ll ever make. And while naming an individual as a fiduciary can be viewed as an honor you bestow on a trusted family member or friend, it’s important to keep in mind that the title comes with serious responsibilities and potential legal liabilities for a breach of a duty, including civil and criminal sanctions. Serving as a fiduciary can require the person to devote a large amount of time to the role. Even a layperson will need to be aware of what a “prudent fiduciary” should know and will be expected to act accordingly.

FIDUCIARIES TO CONSIDER

Fiduciaries can implement your health or estate plans, administer the trusts you create, and settle your estate. The fiduciary you choose can have a significant impact on whether the terms of your Will or trusts are effectively implemented and fulfilled.

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If you decide to name an individual to serve in any fiduciary role, keep in mind the person’s age and skill set.

ExecutorsOne of your first decisions is choosing an executor, who can be an individual fiduciary and/or a corporate fiduciary. When you make a Will, you are called the “testator.” In your Will you are required to name a person or corporate entity to serve as the executor of your estate. Your executor will have a duty to collect and preserve your assets, pay your final bills, file your last income tax return, and eventually distribute the assets of your estate pursuant to the terms of your Will. Dying without a Will is known as dying “intestate.” When this happens, a court with jurisdiction over your property will distribute your assets according to the state’s intestate statute, without regard to any conversations you may have had with your loved ones. Many testators choose a corporate executor rather than an individual executor because the work demanded and the knowledge required. A corporate fiduciary usually has teams of seasoned professionals who have years of experience. Unlike an individual executor, a corporate executor must be well insured and have adequate capital under federal and state laws.

If you decide to name an individual to serve in any fiduciary role, keep in mind the person’s age and skill set. For example, if you name an individual of your own age to serve as the executor of your estate, over time they could end up with some type of cognitive impairment. They may also decide the role is too much of a burden in their advanced age, or simply pass away before it is time for them to serve.

TrusteesA trustee may be an individual, a corporation, or a combination of both. They will have duties and commensurate liabilities by acting as trustee. They will be expected to fully understand the written terms of your trust document and to faithfully and prudently carry out its terms. They will be expected to maintain principal and income records, file state and federal tax returns, and prudently invest your trust’s assets. They must keep precise records, produce information at a beneficiary’s request and defend the trust. Failure to do any of the above can result in civil or criminal penalties. Some clients prefer to name an individual to serve as “co-trustee” with a corporate fiduciary, so the corporate trustee can shoulder the administrative burdens while the individual trustee can provide insight into the backgrounds and needs of the beneficiaries, and has the power to remove and replace the corporate trustee with another corporate trustee.

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When considering a trustee, ask yourself the following questions:

• Should your trustee always be available during normal business hours?

• Are you comfortable with your trustee not being available due to illness or vacation?

• Does the person or corporate entity have the resources to properly administer the trust and carry out its purposes?

• Does the trustee have sufficient insurance or a big enough balance sheet to address claims that may be made by beneficiaries?

A corporate trustee can serve in several capacities, including sole trustee, co-trustee, successor trustee or agent for the trustee. Services include recordkeeping, fiduciary accounting, tax filings, making discretionary distributions, and keeping abreast of changing state and federal laws that may affect the trust. Corporate trustees offer administration and management continuity over multiple generations, plus objectivity. And unlike an individual trustee, they are open on any business day and typically have state-of-the-art fiduciary and investment software.

ORGANIZING AND PROTECTING DIGITAL ASSETS3

Many families keep important information such as

passwords and account numbers saved on their computers

or on a portable USB stick, but others still keep everything

locked away in file cabinets. Regardless of where it’s

stored, it’s important to know in advance where critical

information is located. Collecting asset information now

can make things easier when you, your family or your

fiduciary needs it the most—in the event you become

incapacitated, for example. Merrill Lynch’s Family Album

can be a useful tool for itemizing important documents

and key digital assets, such as:

• Personal assets: photos, videos, emails, music

• Social digital assets: accounts on all social media

platforms

• Financial digital assets: on-line banking sites, bill-paying

sites, investment manager sites, credit card sites, etc.

• Business digital assets: domain names and web access,

patent or customer information, intellectual property

You can help protect these assets by creating an inventory

where you list storage locations, usernames and passwords.

This can be kept with the latest version of your Will, trusts and

other estate documents.

3 “Three Steps to a More Secure Digital Life,” U.S. Trust, 2014.

Unlike an individual trustee, corporate trustees are open

on any business day and typically

have state-of-the-art fiduciary and investment

software.

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GuardiansMany families, particularly those with minor children or a loved one with a disability, appoint a guardian—a type of fiduciary who will become legally responsible for such a family member (or their property) upon one’s death or incapacity. The guardian’s role is to ensure the family member is cared for and to make medical care, education and living accommodation decisions on their behalf. When naming a guardian, consider the age, temperament and financial sophistication of the individual and whether the person shares your values. Many people choose to name two separate guardians: someone to care for the children or loved one, known as a “guardian of the person,” and someone else to oversee their finances, known as a “guardian of the property.”

SETTING UP TRUSTS

A trust can be created during your life or at your death. It is established by crafting a set of instructions called “the trust agreement,” or “trust indenture,” in which you name a trustee to hold the property you transfer into the trust. The instructions will identify the people or charities (known as beneficiaries) who have a right to receive distributions from the trust. There are two types of beneficiaries. Current beneficiaries have a present right to distributions. Remainder beneficiaries have rights to distributions only after the current beneficiaries’ rights have ended.

A trust is a legal arrangement set forth in writing that gives your trustee the power to hold, manage and distribute your assets to your named beneficiaries, pursuant to the express terms of the trust document. Trusts can be revocable or they can be irrevocable. Revocable trusts are generally used as substitutes for traditional Wills. Irrevocable trusts are generally established for tax and creditor-protection purposes. Creating trusts during your life not only allows you to accomplish specific planning goals but can also provide insight for family members into how you envision your legacy and values being implemented. As such, establishing trusts, particularly during your lifetime, creates the opportunity to explore methods of wealth transfer in ways that fit your unique circumstances and align with your goals and values. By starting your trust planning as early as possible, you will have time to consider, with input from your family and advisors, the

A trust is a legal arrangement set forth in writing that gives your trustee the powerto hold, manage and distribute your assets to your named beneficiaries.

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distribution provisions that can be custom-tailored for your family. Provisions can be different for each beneficiary. Distribution provisions can permit a beneficiary to receive distributions on a regular basis, or you might give the trustee the absolute discretion to make such distributions based upon what is in the best interest of that beneficiary. You may want to restrict distributions should a beneficiary exhibit poor behaviors, such as gambling or drug addiction. Sometimes people get creative and try to motivate certain behaviors, such as mandating distributions for graduating from school, the purchase of a first home, getting married or starting a business. The crucial point is, you can customize your trusts to serve any legal purpose.

TYPES OF TRUSTS

Below are examples of some types of trusts you might create. Of course, you should consult with your advisor and attorney to determine which type of trust might be right for you.

During life: Revocable (living) trustsOne of the most common estate-planning tools is a revocable trust. As its name suggests, a revocable trust can be changed, dissolved or revoked at any time after it’s been created, so long as you have legal capacity to do so. A revocable trust is generally used as a substitute for a Will. It is preferred over a Will in states with high probate costs because assets in a trust are not usually exposed to probate. This can reduce costs and accelerate distributions to beneficiaries, or to resulting trusts for your beneficiaries.

“Not only is a revocable trust an alternative to using a Will, but it can also provide for asset management during those times when you may suffer from a temporary or permanent disability,” explains Mitchell Drossman, national director of Wealth Planning Strategies at U.S. Trust. “It facilitates a seamless management of your assets without the need to rely on a durable power of attorney or a court-appointed guardian.”

Only those assets which you re-title into the name of your revocable trust will generally avoid probate. All other assets (excluding insurance, retirement plans and certain joint property) will likely have to go to probate, and then the probate judge can transfer the assets into your trust in order for your successor trustee to manage them. For this reason, revocable trust users will

A revocable trust can be changed,

dissolved or revoked at any time after it’s

been created, so long as you have legal capacity to do so.

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A testamentary trust is a type of irrevocable trust, created by a Will, that becomes effective only after your death.

also use an abbreviated form of a Will called a “pour-over” Will, since it is quite common for people who set up revocable trusts to hold some assets in their individual name.

Another reason people like revocable trusts over Wills is privacy. A Will is generally required to be filed with the court at the testator’s death and becomes public information for anyone who cares to search for it. Trusts, on the other hand, are typically not filed with the court, which means the provisions of the trust remain private.

During life: Irrevocable trustsIrrevocable trusts established during a grantor’s (the person setting up the trust) life are usually created in order to make gifts. To secure certain legal benefits like creditor protection or a charitable income tax deduction, these trusts must be irrevocable, so the grantor cannot change its terms. However, a grantor can often retain control over such trusts by retaining the power to control investments and distributions within certain guidelines. For added flexibility, irrevocable trusts can be drafted to give a third party the right to change any part of the trust. Typical powers may include giving a third party authority to add or subtract certain classes of beneficiaries, move the trust to a different state, or withhold distributions for any reason if it is in the best interest of the beneficiaries.

After death: Testamentary trusts Another common estate planning tool is a testamentary trust—a type of irrevocable trust, created by a Will, that becomes effective only after your death. Because you have passed away and are not capable of changing its terms, it is also an irrevocable trust. It’s common for a Will to include a family, marital, charitable trusts and/or charitable bequeaths.

Though time may pass between the drafting of a testamentary trust and its becoming effective, you can help make the transfer of assets run more smoothly by discussing goals with the nominated trustees and clarifying your intentions during your lifetime. This allows trustees to have a better feel for why the trust will be established, what it seems to accomplish, how it fits within your overall plan, and how it aligns with your values and goals. While a trustee is required to follow the express terms of the trust, sometimes written terms can be open to interpretation, and it is best to discuss what the terms actually mean to you. For example, if a distribution

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FIND SOLUTIONS

Inevitably, challenges will arise during the planning

process. Here are some ways to troubleshoot common

issues and ensure the process runs smoothly.

ISSUE 1: I DON’T KNOW WHERE TO BEGIN.

Solution: Get a holistic view of all assets and liabilities.

My Financial Picture® on MyMerrill.com® can help you

monitor your assets and liabilities as well as track

income and spending. This will give you a more complete

view of your finances and provide the foundation for the

investment approach you will build with your advisor.

You are also given a choice as to which documents and

what information you would like to share with

your advisors.

ISSUE 2: ORGANIZING CRUCIAL PAPERWORK LEADS

TO A SENSE OF INFORMATION OVERLOAD.

Solution: Merrill Lynch’s My Family Album can get you started

by serving as a master document on which you can store

personal information ranging from passwords and PINs to

medical records, financial documents and key contacts. In

addition, Documents Vault on MyMerrill.com can provide you

with a convenient place to easily upload and store personal

documents in a secure repository.

is to be made to support the beneficiary’s lifestyle, do you mean the beneficiary’s lifestyle on the date you signed the trust, the date of your death, or some other date?

“If you are establishing a testamentary trust, start with a conversation with the future trustee,” says Allred. “A trustee is often given flexibility to make ‘discretionary’ distributions of assets for the beneficiary’s needs, such as health, education, maintenance and support. Discuss philosophies and what process and guidelines you are using to make lifetime gifting decisions and delegate certain responsibilities.”

COMMUNICATION: PREPARING FOR THE FUTURE

Even if you name fiduciaries, set up a trust and diligently prepare for the transfer of wealth upon your death, such a transfer rarely goes smoothly if intentions are not clearly communicated prior to the time it actually occurs. Consider a client experiencing cognitive decline who rejected help with financial planning.4 As a result, his family was left with a financial quagmire, finding checks and misfiled paperwork many months after his passing.

A transfer of wealth upon death rarely

goes smoothly if intentions

are not clearly communicated

prior to the time it actually occurs.

4 “Early-Stage Caregiving,” Alzheimer’s Association, 2016.

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Family members can support aged or infirm loved ones by helping them relinquish control in stages, rather than asking them to do so in one fell swoop.

For those who’ve built careers on being decisive, handing over the reins to someone else can be particularly difficult. “It was a tug-of-war to get my own parents to realize they couldn’t handle their finances anymore,” says Lori Sieber, a senior trust officer at U.S. Trust. “It’s a trust issue and a control issue. It’s probably one of the hardest conversations children will ever have with their parents.” Sometimes these well-meaning conversations can have unintended consequences, like angering or scaring your parents. Parents may feel like they’re losing control or being forced to do something that perhaps they are not equipped to understand anymore.

That’s why sharing your thoughts and eliciting their feedback as early as possible is crucial, so there can be multiple conversations and everyone has time to consider each other’s point of view.

Family members can support aged or infirm loved ones by helping them relinquish control in stages, rather than asking them to do so in one fell swoop.

Most wealth creators want their surviving loved ones to be resilient and empowered to make wealth decisions that align with the family’s values. To achieve this goal, it’s paramount to engage in clear communication, a strong system of family governance, and ongoing financial education and mentoring. Ultimately, these steps help the next generation have the confidence and know-how necessary to make decisions in alignment with family values and goals.

III. Assessing Your AssetsThe type of asset and how you hold title to that asset matters. Assets held in your name or in the name of your revocable trust will be distributed under the terms of your Will or revocable trust. If these documents are not in place, distribution decisions will be made pursuant to state law. However, assets held jointly with another person with right of survivorship (a.k.a. JTWROS or TBE) will pass directly to that person and not be subject to the terms of your Will or trust. Other assets that generally pass outside of your Will or trust include insurance, IRAs and retirement plans, pay-on-death (POD) bank accounts and transfer-on-death (TOD) securities accounts.

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As a starting point, it’s a good idea to identify your assets and how each is titled. We recommend to our clients Merrill Lynch’s Family Album, which can be a useful tool for organizing financial and estate documents related to the different types of assets one might own.

TYPES OF ASSETS

Tangible personal propertyMany states allow the creation of a list to dispose of tangible personal property, such as jewelry, clothes, art and collectibles. By allowing such lists, states have given you the ability to rewrite a portion of your estate plan without having to go back to your attorney and incur additional legal fees. By sharing your list with your family members and discussing the reasons behind your decisions, you may be able to eliminate many if not all ill feelings among your heirs, who might otherwise disagree with each other over who is entitled to a particular object. As an alternative, you might leave instructions to the executor to sell everything and then distribute the proceeds to your heirs. Or you may want to design some type of selection process the heirs must follow, such as age order.

Sometimes, a spouse or other family member inherits tangible personal property, but may not appreciate the testator’s sentimental reasons for specifically bequesting that item. To avoid confusion, you might consider making decisions about certain “special” items of tangible personal assets as a current gift, and communicate your intent.

“You may want to use the planning process as a chance to gift some things you are ready to part with,” says Allred. “That way, you can participate in the enjoyment of giving during life, versus after your passing.”

Some families may have multiple beneficiaries decide on distribution of the assets, but the process should be clear. Some may opt to bring in a third party to divide personal property if the members of the group cannot come to an agreement on their own. Yet another asset distribution strategy is to simply ask heirs to choose the items they want. Often, this self-selection process works surprisingly well, because heirs make such decisions for different reasons. While economically valuable items might be part of the equation, sometimes families don’t consider the fact sentimental items, though often less valuable, can be just as desirable.

To avoid confusion, you might consider

making decisions about certain

“special” items of tangible personal

assets as a current gift, and

communicate your intent.


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Residential propertyDistributing residential property requires an understanding of both economic and sentimental value. Consider a father who left a beach house to his four adult children in the hope it would become a legacy property. Three of the kids were able to pay their portion of the maintenance fees, but one wasn’t. This led to a sense of insecurity on the part of the less-affluent sibling, who felt he was unable to contribute his fair share and feared resentment from his siblings.

“In these cases, one should keep an eye on how the plan may impact the surviving family’s economic situation and relationship dynamics,” says Kevin Hindman, national trust executive at Merrill Lynch. “If one wishes to keep residential property in the family, one may need to provide funds for upkeep, taxes, etc.”

BUSINESS PROPERTY AND SUCCESSION

Complex scenarios can play out in business succession. One of the important decisions a business owner must face is when and how to step out of the business—in other words, business management and succession planning. Take a father who owned a third-generation business. Two of his three children had no experience or interest in the business, while the third had a senior management role, making her the natural person to whom the business should devolve. Had all three children been left the business, consider the consequences: If the sibling in a leadership role was receiving a paycheck and the other two siblings held equity, this could lead to conflict if the latter two siblings weren’t happy with how the former was running the business. In the worst-case scenario, explains Hindman, the two siblings with equity could outvote their CEO sibling.

A better solution might be to leave the business to the experienced sibling and make the other two beneficiaries a bequest of assets of comparable value (i.e., equalizing their shares in the estate). “Everybody feels like the inheritance has been equalized, but they’ve also made sure the ‘right’ assets end up with the ‘right’ beneficiary,” says Hindman.

Keep certain things in mind when transferring or selling your business to family members, such as tax consequences, depending on how you choose to

One of the important decisions a business owner must face is when and how to step out of the business—in other words, business management and succession planning.

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gift, bequest or sell your business:

• Lifetime Gift/Sale to Your Family. If your family is involved in the business, you could give or sell your business to them.

• Sale to Non-Family During Your Lifetime. If your family is not involved in the business, you could sell the business to someone who is not a family member when you are ready to move on.

• Gift/Sale Upon Death. If you are not ready to retire, you could simply provide for the sale or distribution of your business upon your death.

• Sale to Co-owners. If you co-own the business with others, you could enter into an agreement with them to sell your business interest upon the occurrence of one or more events.

• Create an Employee Stock-Ownership Plan. You can sell some or all of the business to your employees.

Also, if you actively manage the business, you should make sure to have a plan in place for one or more persons to take over the management of the business if you are no longer able to carry out those responsibilities.

IV. Passing on Your Legacy SHARING VALUES

In addition to distributing property of economic value, families need to consider how they’ll pass along a priceless asset: their values and legacy.

There are a few ways to help achieve this goal. One is to create a legacy letter describing your values, life lessons, and hopes and dreams for the future. This may include elements of your life story, including your biggest accomplishments and/or deepest regrets. Such a letter is not meant to be binding on your heirs or fiduciaries, but rather is meant to tell your story, why you hold the values you do, why you set the goals you have set, and why

Families need to consider how

they’ll pass along a priceless asset: their

values and legacy.

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you hope your family will not only respect those values and goals but pass them along as well.

Talking about your legacy can be both illuminating and instructive.Sometimes, the mere act of memorializing the story of how your wealth was created can help the next generation find the purpose and value in their inheritance. Technology continues to make it easier for families to document and define their legacies. Capturing stories on video and legacy applications like Immortalia5 offer new ways to chronicle a narrative using digital devices. Whether they see, read or hear it, providing future generations the opportunity to understand your story is extremely powerful.

Technology continues to makes it easier for families to document and define their legacies.

COGNITIVE DECLINE

As people live longer, an increasing number of

Americans will grapple with various forms of cognitive

decline, including dementia and Alzheimer’s disease.

These are commonly characterized by memory loss,

decreased or poor judgment, and difficulty with familiar

tasks.6 In 2010, the national cost of medical care for

people with dementia reached $109 billion, making it

more expensive than both cancer and heart disease.7

And though risk increases as one grows older, age

is not the only factor in the onset of Alzheimer’s.

Bank of America Merrill Lynch executive Alister Bazaz,

whose wife, Cecile, was diagnosed with early-onset

Alzheimer’s disease at the age of 51, learned the

hard way.

As Alister and Cecile were relatively young, they did not

have long-term-care insurance, which could have paid for

an at-home caregiver for Cecile during the first stages

of the disease, and then for her residence care. But

Bazaz had wisely purchased higher amounts of long-

term disability insurance, above and beyond the basic

level provided by Cecile’s employer, several years

earlier. Long-term disability insurance has substantially

compensated for Cecile’s loss of income and the very

high costs of 24/7 care.

To prepare, “you need to assess your own personal

situation,” says Bazaz. “Are you both working, do you

both have long-term disability coverage, and is the

coverage adequate to take care of you in the event of a

long illness? Without the policy my payments would be

coming significantly out of pocket.” Had Alister not

been proactive before his wife’s diagnosis, they might

have found themselves financially burdened.

5 “The Gift That Only You Can Give,” Immortalia, 2016..6 “Addressing Memory and Your Family,” Merrill Lynch Private Banking & Investment Group, 2015.7 “Dementia Has Become More Expensive Than Cancer, Heart Disease,” Advisory Board, 2013.

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V. The Challenges of Caretaking BEFORE ILLNESS: ANTICIPATING CARETAKING NEEDS

Another aspect of planning for the future many people tend to overlook is long-term care. While few people anticipate needing long-term care, the reality is 70% of those turning 65 in 2015 will need some form of long-term care during their lifetime.8 As life expectancy increases, so do the chances of health complications—both expected and unexpected—that will call for professional care. And as costs continue to rise, funding long-term care is of mounting concern. In fact, only four in 10 wealthy individuals consider themselves prepared for the financial impact of long-term care, according to a U.S. Trust survey.9

Yet all too often, health-care planning begins and ends with naming a health-care proxy and creating a living will. The fact is, these documents are just the starting point for making caretaking decisions.

That’s why it helps to consider and plan for how you would fund a long-term illness, and to define and communicate your expectations of care at every level, while you and your loved ones are still healthy.

DURING ILLNESS: MANAGING INCAPACITY AND FAMILY DYNAMICS

Planning now for old age and possible incapacity also gives families time to think about different levels of care that might be appropriate in different scenarios. Knowing how to choose caregivers and identifying when it’s necessary to move into a facility, or being aware of desired care needs after surgery or treatment, allows you to plan and prepare for a range of situations as well as to make your wishes and caretaking preferences known to family members.

All too often, health-care

planning begins and ends with

naming a health-care proxy and

creating a living will.

8 “By the Numbers: Will You Need Long-Term Care?” Merrill Lynch, 2016. 9 2015 U.S. Trust Insights on Wealth and Worth®.

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Dealing with a long-term illness or disability is never easy, but having transparent discussions with family members about the common challenges of caretaking can help alleviate some of the stress these situations will inevitably bring. For instance, although 87% of people receive at least some of their care from outside parties,10 many family members feel a sense of guilt about paying someone else to care for a loved one. And for family members who become caretakers themselves, the experience can be emotionally and financially draining.11 Many familial caretakers are also part of the “sandwich generation,” those boomers and Gen X-ers who simultaneously balance their children’s college tuition with caring for their elderly parents.

LONG-TERM-CARE INSURANCE

Long-term-care insurance can provide a financial safety net should you or a loved one face a long-term illness or disability. The trade-off between obtaining coverage earlier in life at a lower premium or waiting until your 50s or 60s and paying higher premiums is a tricky one. But if you wait too long, there’s an increased chance you won’t be able to obtain coverage at all. In order for long-term-care insurance to take effect, it must be purchased before any diagnosis of impairment is evident. Though people usually start talking about it in their 50s, there’s no one right age to obtain long-term-care insurance, says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. Hutchins suggests starting the process by asking key questions about your family health history, your current risk factors and your potential for longevity.

After factoring in health concerns, work with your advisor to determine how far you can spend down your assets. Using the Merrill Lynch Wealth Outlook tool, your advisor can run cash-flow projections based on a number of different factors and assumptions, including your aversion to risk and the skyrocketing cost of long-term care.

“When you look at your wealth projections with your advisor, remember not all risks are created equal,” explains Hutchins. “For example, when it comes to inflation’s impact on the ability to achieve financial goals related to long-term care, I suggest people consider factoring in an above-average inflation rate because costs continue to rise at a surprising clip.”

Long-term-care insurance can provide a financial safety net should you or a loved one face a long-term illness or disability.

10, 11 “By the Numbers: Will You Need Long-Term Care?” Merrill Lynch, 2016.

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Considering the expense of

long-term care can also help

families foresee potential issues.

Considering the expense of long-term care can also help families foresee potential issues. But keep in mind there are other concerns, such as the importance of communicating your wishes as to who will be providing care (family member or outsourced), what type of caregiving (outsourced; in home; family member) you’d like to receive, where you’d like to be taken care of (home or facility), and how the cost is going to be covered. This, in turn, will alleviate the emotional burden on your loved ones who would otherwise be making these decisions after you become ill.

VI. Crisis Management and Sudden Death Not long ago, a client’s family experienced a terrible tragedy. The family matriarch was killed in an accident, leaving her loved ones consumed by grief. Fortunately, the family had established a system of family governance and a detailed estate plan. The governance process kicked in, and the family members knew what their respective roles were—who was to pay the bills, who was to manage the household, etc. This gave each of them a sense of purpose during their time of grief.

Each year, approximately 424,000 people experience sudden cardiac arrest, with only about a 10% survival rate,12 and accidents and other injuries take thousands of lives every year.13 These incidents can leave family members scrambling for answers and suddenly facing a new set of responsibilities, especially where the deceased or incapacitated person was the family’s primary breadwinner or financial manager.

Consider another client who lost her husband, the family’s primary financial manager, to a sudden heart attack. She and her husband had already established a plan, and she was able to enlist the services of the family’s estate planning attorney, accountant and financial advisor to assist by accessing accounts and gathering key documents to help her through this period while she was focused on taking care of the rest of her family, even as she fought through her own grief.

12 The American Heart Association, 2014. 13 Centers for Disease Control, 2015.

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VII. Preparing for Tomorrow Means Enhancing Life Today

While people will face similar questions about their assets and legacy, planning for the future is a deeply personal process. Your advisor can serve as an educator, helping you weigh various options and offering a range of potential solutions. Of course, thinking about one’s mortality is never easy, but doing so now will help you enjoy your life today, providing peace of mind and the assurance that all that has been, is and will be your life will continue in the legacy you leave behind.

Ultimately, defining your wishes isn’t just about what’s at stake for your family after your passing. Often, it’s about helping you and your loved ones gain clarity and direction for the future and, in doing so, enable you to better enjoy your life.

Your advisor can help you and your family prepare for whatever the future may hold. Meet with your advisor today to help you prepare for tomorrow.

For more information, visit ml.com/agingandyourwealth

Action ChecklistsThree useful guides to help families prepare for the passing of a loved one

1 Develop a Health and Wellness Plan for the Later Years

2 Make Organizing Your Estate a Priority

3 Loss, Legacy and Looking Ahead

While people will face similar questions about their assets and legacy, planning for the future is a deeply personal process.

This material should be regarded as general information on healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular healthcare situation, please contact your healthcare, legal or tax advisor.

Long-term-care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.

All guarantees and benefits of an insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.

The opinions, assumptions, estimates and views expressed are as of the date of this publication, are subject to change, and do not necessarily reflect the opinions and views of Bank of America Corporation or any of its affiliates. The information does not constitute advice for making any investment decision or its tax consequences and is not intended as a recommendation, offer or solicitation for the purchase or sale of any investment product or service. Before acting on the information provided, you should consider suitability for your circumstances and, if necessary, seek professional advice.

The information presented here is not intended to be a specific offer to sell or provide, or a specific recommendation to buy, any particular product or service.

Bank of America Corporation (“Bank of America”) is a financial holding company that, through its subsidiaries and affiliated companies, provides banking and nonbanking financial services.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Bank of America Merrill Lynch is a marketing name for the Retirement Services businesses of BofA Corp.

U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A. and other subsidiaries of BofA Corp.

© 2017 Bank of America Corporation. All rights reserved. AR7W44TS | 09/2017

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