Posted on: December 1st, 2017
What if you lived to age 95, 100 or even beyond—and in good enough health to keep enjoying an amazing life?
Sounds like a dream come true, right? Increasingly, hitting the century mark is becoming a real possibility thanks to huge advances in health care, such as the mapping of the human genome.
But—there’s always a but, isn’t there?—living an extra-long life comes with some potentially major concerns and downsides. Like money, for instance. If you tack on an additional ten or 15 years, you could face the very real and dangerous risk of running out of money while you’re still alive—or having so little left that your lifestyle becomes seriously compromised.
The good news: Longevity planning is becoming an increasingly important part of successful families’ wealth management efforts to combat the risks inherent in living much longer than previous generations did. Essentially, longevity planning is about taking action to live longer. But those actions lead to other issues, including financial ones—which is where wealth management comes into play.
Here’s a look at two ways wealth management is used by families and successful business owners with significant assets to help ensure their wealth is well-positioned to go the distance: paying for concierge medicine and estate planning.
Any discussion of rising life expectancies and how to fund them must involve the topic of paying for what is likely to be very expensive medical care, so that you or loved ones can continue to have lives that are not just extended but also healthy.
Of course, the medical care landscape is changing at a rapid, and accelerating, pace. The traditional health care system is very unlikely to be able to keep up with demand, and there is great potential for people getting lost in the cracks.
For those who are concerned, and who can afford it, concierge medicine is a viable solution.
An umbrella term covering a wide variety of health care delivery models, concierge medicine is at its core a membership model: For a fee, you get access to “boutique” medical practices with relatively small ratios of patients to physicians—enabling shorter wait times, longer visits and significantly more personalized care given (in many cases) by physicians with greater expertise than the typical provider has.
The problem: High-quality concierge medicine can be extremely costly, depending on the care needed and the providers.
Therefore, the ability to use wealth management solutions to address the potential costs of concierge health care and specialized medical care can be extremely valuable—even to those of us with significant wealth. Consequently, some of the foremost wealth managers, accountants and attorneys are working with families to make certain that their financial and legal world is set up to benefit from high-quality longevity planning. Consider the following examples of health care issues and how wealth management solutions can help support the use of concierge medicine to address those issues.
Consider a wealthy family with more than $100 million in net worth, most of which is tied up in their family business and illiquid. A family member requires costly, state-of-the-art treatments that are available only in a foreign country, as well as significant post-treatment rehabilitation. Being able to financially prepare for such a situation because of genomic testing can be instrumental in preserving the family business and ensuring the family member gets the best medical care possible.
Solution: A captive insurance company can be set up to address the health care needs. Captive insurance companies allow businesses to tax-efficiently self-insure. If structured properly, a captive insurance company can be adroitly used to manage health care risks. And if the claims are not considerable, there can be tax benefits for the owners of the captive insurance company (the owners of the company being insured).
Due to longer and more active lives, individuals can run out of money. With medical costs likely to continue to rise and age working against you, you need to manage financial assets in a way that accounts for much longer life spans and ensures a long and well-lived life.
Solution: An as investor, it’s all about how much you walk away with—not necessarily how much you earn. A great-performing investment can become mediocre after taxes. There are, however, ways to mitigate the tax bite from a variety of different types of investments. One way the Super Rich (people with a net worth of $500 million or more) are approaching this matter is by using private placement life insurance, which makes it possible for an investor to capture returns tax-free. A tremendous appeal of private placement life insurance is that the investment options can be tailored to an investor’s needs and the cost of insurance per dollar of coverage is much reduced. With proper planning, the cash value appreciation and insurance coverage can also escape gift and estate taxes. In addition, private placement life insurance can be structured to provide world-class protection from creditors.
Estate planning is another key aspect of longevity planning. Due to longer life spans, many successful business owners and other wealthy families have to rethink their existing estate plans and even their entire mindset about wealth transfer. Indeed, the potential to live much longer can create an estate planning minefield for wealthy families as well as their wealth managers and tax experts.
Specifically, we’re seeing significant issues develop for high-net-worth families in terms of how and when to transfer assets to subsequent generations.
For example, among many wealthy families, a critical longevity-related question must now be asked: “When do the next generation get to benefit from and control the assets they are intended to have?”
If the successful business owners, for instance, are living past 100 thanks to medical advances, when do the inheritors take control of a family-owned and managed company? Is it in their 70s? 80s? 90s? Potentially disastrous family confrontations could arise from not thinking through the possibilities and being proactive. Consider one example of a family business where the son was in his early 50s and his father (the founder) was in his early 80s. The son had expected to take over the business years ago—but his father, who was in good health, had no intention of stepping down. Fed up, the son left to start a competing firm. Ultimately, this led to threats of physical harm, lawsuits and a split within the family that negatively impacted the owner’s relationship with his grandchildren.
Controlling wealth until death is a common practice among self-made millionaires. But this philosophy can lead to poor estate plans, especially when the people involved live a long time. In cases where the wealth holders are living a very long time, it is their responsibility to construct estate plans that clearly spell out what is to happen.
Best practice: Often, it is wise to transfer assets before death, which can head off lots of possible problems—such as family disputes, lawsuits and assets strangely disappearing. Shifting some wealth before death can also prevent problems if the wealth holder suffers dementia and is exploited by advisors, staff or even family members.
As you move forward, consider the following questions:
The fact is, with longevity planning garnering tremendous interest, high-caliber wealth managers and aligned professionals are going to play critical supporting roles in areas like paying for concierge medicine and estate planning. The expertise of truly skilled wealth managers can be crucial in enabling those of us who are not stratospherically wealthy to afford top concierge medical practices as well as diagnostic or treatment regimens.
Contact your legal or financial professional to discuss any longevity-planning concerns you may have.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
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