When living longer has a catch

Sometimes those extra years play havoc with your estate planning

Recently the Centers for Disease Control and Prevention produced a paper called “Death in the United States.” While this might seem to be a morbidly unusual article for the Home Furnishings Association, please bear with me because the data within present important implications for family and closely held businesses, which will change the nature of both management succession and ownership succession planning. Here are some of the key findings from the report:

The age-adjusted death rate for the United States reached a recorded low of 760.3 per 100,000 population.

Life expectancy at birth for the average American reached a recorded high of 77.9 years.

The five leading causes of death have not changed in years: heart disease, cancer, stroke, chronic lower respiratory diseases and accidents. These accounted for more than 64 percent of all deaths in the United States in 2017. But the death rate continues to drop. It is now 43 percent lower than in 1960.

Hawaii (of course!) had the lowest age-adjusted death rate of all the states, while West Virginia had the highest age-adjusted death rate.
States in the Southeast generally have higher death rates than those in other regions.

Death rates for all ethnic groups have decreased over time.
Since 1980, the three leading causes of death, in order (heart disease, cancer and stroke), have not changed. However, deaths from heart disease decreased, while cancer deaths increased. It’s likely that, in the near future, cancer will overtake heart disease as the leading cause of death in the United States.

This is — mostly — good news! People are leading longer, healthier lives than at any other time in human history. What does a longer, healthier life span, then, have to do with your home furnishings store in 2019? Here’s a quick list of challenges family businesses may expect to experience as family members and employees live longer.

Differing generational mind-sets

World War II babies gave way to Baby Boomers who gave way to Generation X. The WWII group lived to work. The Baby Boomers tried to find work/life balance in their lives. Generation Xers work to live. There is truly a generation gap; families struggle with the older generation’s insistence on 60-hour work weeks compared to the younger generation’s desire to work smarter — but not as hard — and delegate more.

Longer life spans mean more adult family members may be working at the family business. Family companies will need rules about who is and isn’t eligible to work there and who is and isn’t eligible to own shares in the enterprise. Furthermore, they’ll need airtight shareholder restriction agreements and other governance tools to make sure the generations can co-exist harmoniously — and have exit plans when harmony is hard to find.

Coping with aging

Diseases that would have killed us a few generations ago now don’t. However, aging still takes a toll on the body; many of us are now coping with physical and mental limitations and diseases endemic to aging, such as dementia. Family businesses must adapt. Powers of attorney for medical and financial matters allow younger, healthier family members to assist in making decisions for older members. Many senior family business owners bought life insurance policies, but some are in danger of outliving their life insurance. Many types of term insurance stop at age 80. All traditional insurance matures at 100. If life insurance is a big part of the family business continuity or estate plans, it should be reviewed — especially in view of the volatility of the financial markets in the last few years.

People living longer have a greater need for money. When Social Security established the “normal” retirement age at 65, the typical American male lived only two to three years beyond that, so his income requirements were limited. Now, a man who reaches 65 is likely to live to 81, and life spans continue to increase. Retirement extends for 16 years, on average, rather than three. At 65, a woman can expect to live to 85! Longer lives increase the need for financial resources, especially as people want to enjoy an active retirement.

Finding challenging roles for senior leaders

What will elders do with their additional time on earth? How will they stay challenged, energized and productive? What roles will they have in the family business, and what roles does that leave for the junior generation? How will the generations share power and responsibilities?

Demographically speaking, we are on the cusp of what might be called a “sandwich generation.” A gentleman called a few years ago saying that his 78-year-old father had passed away, and he now owned the family business where he was the newly installed president at age 56.

His problem was that his 30-something children were already agitating for him to begin an aggressive round of succession planning! His lament was, “I’ve only been ‘the man’ for less than a year, and they’re already after me to get out of the way. I’d like to enjoy my day in the sun for a little while.”

This will become more and more common, and with the availability of such legal tools as generation-skipping trusts, the sandwich generation might find its days in the sun to be more limited than it imagined. Junior family members could be senior citizens themselves before they inherit family business assets. The problem of the eldest generation holding on to the business past the point of productivity will only be exacerbated as people live longer.

Employees are graying. Most non-family management leaders tend to be roughly the same age as senior family business owners. Some of the same falling productivity issues will challenge them. Family businesses — known for loyalty and sentimentality toward long-time employees — will have some difficult personnel decisions to make.

There are probably many other family business stresses created by the happy circumstance of longer life spans. On a much more positive note, longer lives promise benefits. The most obvious is that senior family members will be around longer for us to love, learn from and enjoy.

They’ll be able to pass along their accumulated wisdom and share in a meaningful way with their adult grandchildren and maybe great-grandchildren. Longer lives mean your store might have more time to get it right. The planning horizon will be longer, you’ll be able to assimilate short-term mistakes easier, and you’ll have more opportunity to professionalize the business for sustainable growth and prosperity.

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