(Note: This piece also ran in the Chicago
Sept. 2, 2003
Why fewer seniors are leaving inheritances
Retirees are increasingly less inclined or able
to leave bequests, as living expenses increase.
By Steve Friess | Special to The Christian Science Monitor
LAS VEGAS - The e-mail from Daisy Granger's parents came as
an unpleasant - even jarring - surprise to her and her three
brothers. "We just want you all to know," their 66-year-old
father wrote, "that you should not expect an inheritance after
we pass. We might leave something, but it's more likely we will
spend it to maintain our lives as we wish for the next 20 or
Ms. Granger's father may have been more direct than most parents
about it, but in one way or another thousands of would-be heirs
are getting a similar message: Don't plan on getting an inheritance.
With expected life spans stretching longer and longer and the
cost of healthcare skyrocketing, the idea of parents leaving
largesse behind is becoming secondary to their using it to live
as comfortably as possible.
At the same time, many older Americans today have a different
ethos about passing on money than their ancestors had. Some
believe it's better for their children to make it on their own,
and others want to use whatever little funds they have left
to enjoy their twilight years.
The result is a potentially dramatic drop-off in the transference
of wealth in many families that may affect successive generations'
planning about everything from paying off longstanding debts
to how long they will stay in the workforce.
"Baby boomers are going to get hit with a series of bad economic
shocks and bad reality checks, one of which is relatively low
inheritances," says Laurence Kotlikoff, an economist at Boston
University who is expert on bequest trends.
In many cases, parents give money to their children before
they pass on. Such gifts can take subtle forms, such as financing
a grandchild's private-schooling.
But new statistics from a forthcoming report by the American
Association of Retired Persons (AARP) indicate that 14.9 percent
of baby boomers in a 2001 survey expected an inheritance from
their parents, down from 26.9 percent in 1989. Among "post-boomers"
(those born after 1964) the figures are even more startling;
only 5.8 percent expect a bequest, down from 10.8 percent.
Add in the recent stock market plummet, which may not be reflected
in those figures, and experts suspect this major change in the
transfer of generational wealth is only becoming more dramatic.
Estimates have varied widely over the past decade as to how
much wealth the pre-Boomers would leave to their offspring,
with some economists - at the height of the market bubble -
predicting a staggering $136 trillion would be passed down in
the next 50 years. A more moderate, though still substantial,
$41 trillion is seen as a better guess now, especially due to
care expenses, according to American Demographics magazine.
"People are planning to make their money go further because
they might need it," says John Gist, AARP's public policy director.
"Also, people put their money in the market and now that the
market has fallen, they're less optimistic about being able
to either give or receive an inheritance."
Nest eggs as healthcare funds
One of the most common reasons is the one that snuck up on
Mary Durlak, of West Falls, N.Y. Her parents lived frugally
to save about $300,000, but her 87-year-old mother broke a hip
and has been in a nursing home for the past three years. At
$7,000 a month, the home has swallowed the money Ms. Durlak's
parents had hoped to leave her and her sister. Durlak, who is
single and childless, admits she figured the inheritance was
part of her retirement plan.
"Now I say to myself, 'What was I thinking?' " says Durlak,
who works in the marketing department at Buffalo State University.
"It just seemed incredible to me that my mom would be one of
the people who would not only end up in a nursing home, but
in a nursing home for a real long time."
As many as 46 percent of senior citizens over age 65 will
live in nursing homes for some amount of time in the next 20
years, AARP says, costing as much as $100,000 a year. In many
cases, children sell the family home they hoped to inherit to
pay health bills.
"More people are aware of this, but not nearly enough are
doing enough about it," says attorney Tom Handler of the Chicago
firm of Handler, Thayer, and Duggan, L.L.C. "Not only are they
not going to get an inheritance, but there's a good chance that
they'll support parents themselves."
Still, even in situations where that seems unlikely because
of careful planning and solid long-term health-insurance policies,
the situation has created some bruised feelings in some cases.
Ms. Granger of Dallas says she and her brothers felt blindsided
by their altered expectations, although she understands the
situation. Her folks had provided well for them, raising them
in a large home in suburban Houston with a live-in housekeeper.
They also paid for their elite private universities.
But in the e-mail, her father explained for the first time
that his business and his investments had faltered badly amid
the stumbling economy. He and their mother had decided to pay
off mounting debts, and work with a financial planner to determine
how to make his assets last.
"He's given us plenty," Granger says. "If they want to live
it up for now, I have no problem with this. But I think we all
just assumed that money would be there. I certainly haven't
been putting as much into my 401(k) as I might otherwise have
Another mistake is relying on life insurance to provide a
posthumous present when assets can't. It's true that the longer
life spans - the average life expectancy now is a record 77.2
years - have prompted life insurance companies to start writing
term policies for people up to age 80. That was unheard of years
ago. But the health criteria are so stringent that few qualify
and the costs are so high that people who can afford it would
have no problem leaving bequests for their children anyway,
says Sylvia Singh, co-founder of San Francisco-based Select
Last week, Ms. Singh wrote two 20-year, $100,000 policies
for a 79-year-old woman - for a total of $5,600 a year. "This
is not the sort of thing people do if they're living on Social
Security," Singh notes. "This industry is not here to create
an estate where there is none. It's here so that if people die,
the money can cover the liabilities somebody can get stuck with."
There's one other reason inheritance expectations have been
dashed: The dwindling number of parents who feel that leaving
money behind is a priority. This generation of seniors doesn't
place great importance on leaving a bequest.
Experts say that today's seniors will leave as much or less
than their own predecessors did in the 1950s, 1960s, and 1970s
- and that whatever is left will be shared among more baby boomer
siblings making for smaller individual gifts. Mr. Kotlikoff
coauthored a 1998 paper that indicated that bequests as a percentage
of lifetime earnings was about the same in 1997 as it was in
the 1962. But now he says it will probably drop because that
paper was written as the stock-market boom was ascending.
Ripping up the will
Many Seniors figure money ought to be earned, not inherited.
Mr. Handler tells the tale of billionaire Don Reynolds, who
died in 1989. He left $1 million to each of his children, a
mere fraction of what he put into the Don Reynolds Foundation.
Says Handler: "He felt that to give his children anymore would
be doing a disservice to them. The idea is to teach them to
fish, not to give them the fish."
Claire Brody, 71, of St. Paul, Minn., puts it somewhat differently:
"I gave birth to them, I dried their tears for years, and I
played with their children. Now I'm going to see the world with
my husband. Our turn. Lucky us."