ECONOMIC OUTPATIENT CARE
THEIR PARENTS DID NOT PROVIDE ECONOMIC OUTPATIENT CARE.
Dear Dr. Stanley and Dr. Danko:
I just finished reading an article about your research on millionaires. My wife has an overdue trust that her parents won’t release. My mother-in-law keeps putting us off with paperwork. She seems determined not ever to release the trust to my wife.
Is it possible that you have come in contact with my wife’s family in your research? Her name is. Or perhaps you could suggest another source that would tell us how much is in the trust.
Thank you,
Mr. L. S.
The author of this letter and his wife urgently need money. The writer (we will call him Lamar) is the husband of a woman (we will refer to her as Mary) who comes from a wealthy family. Mary receives more than $15,000 in cash gifts annually from her parents. She has received gifts of this type, as well as other forms of help, since she and Lamar got married nearly thirty years ago.
Today she and her husband are in their early fifties. They live in a splendid neighborhood in a fine home. They are country club members. Both love to play tennis and golf. Both drive imported luxurycars. They wear fine clothes and are socially involved with several nonprofit organizations. They were previously active in raising money for the private schools their children attended.
Both enjoy vintage wines, gourmet foods, entertaining, high-quality jewelry, and foreign travel.
(152 of 277)
Their neighbors think Lamar and Mary are wealthy. Some are firmly convinced that they are multimillionaires. But looks can be deceiving. They are not wealthy. Do they at least earn a high income? No, neither the husband nor the wife earns a high income. Mary is a housewife. Lamar is an administrator at the local college. Never in the couple’s long marriage have the two ever had an earned annual income in excess of $60,000, even though they have a lifestyle similar to those with incomes of at least twice theirs.
Some may suggest that this couple does an outstanding job of budgeting and planning. How else can they live so high with so few dollars of income? But Lamar and Mary have never put a budget plan together in all the years they’ve been married. They spend in excess of their income every year. They also spend all the money Mary receives from her parents. In short, Mary and Lamar are able to live so lavishly because they are the recipients of what we call economic outpatient care (EOC). Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren. This chapter will explore the implications of economic outpatient care, and how it affects the lives of those who give it and those who receive it.
(152 of 277)
EOC
Many of today’s distributors of EOC demonstrated significant skill at accumulating wealth earlier in their lives. They are generally frugal with regard to their own consumption and lifestyle. But some are not nearly as frugal when it comes to providing their children and grandchildren with “acts of kindness.” These parents feel compelled, even obligated, to provide economic support for their adult children and their families. What’s the result of this largesse? Those parents who provide certain forms of EOC have significantly less wealth than those parents within the same age, income, and occupational cohorts whose adult children are economically independent. And, in general, the moredollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.
Distributors of EOC often conclude that their adult children could not maintain a middle-or upper-middle-class high-consumption lifestyle without being subsidized. Consequently, an increasing number of families headed by the sons and daughters of the affluent are playing the role of successful members of the high-income-producing upper-middle class. Yet their lifestyle is a facade.
These sons and daughters of the affluent are high-volume consumers of status products and services, from their traditional colonial homes in upscale suburbs to their imported luxury motor vehicles. From their country club affiliations to the private schools they select for their children, they are living proof of one simple rule regarding EOC: It is much easier to spend other people’s money than dollars that are self-generated.
EOC is widespread in America. More than 46 percent of the affluent in America give at least $15,000 worth of EOC annually to their adult children and/or grandchildren. Nearly half the adult children of the affluent who are under thirty-five years of age receive annual cash gifts from their parents. The incidence of giving declines as adult children grow older. About one in five adult children in their mid-forties to mid-fifties receives such gifts. Please note that these estimates are based on surveys of the adult children of the affluent and that gift receivers are likely to understate both the incidence and size of their gifts. Interestingly, when surveyed, gift givers report a substantially higher incidence and dollar amount of gift giving than their adult children who are the recipients.
(154 of 277)
Much EOC is distributed in lump sums or erratic patterns. For example,
affluent parents and grandparents are likely to give their children entire coin collections, stamp collections, and similar gifts in one transfer. About one in four affluent parents has already given such collections to his or her adult children or grandchildren. Similarly, payment of medical and dental expenses is often precipitated by a grandchild’s need for orthodontal work or plastic surgery. About 45 percent of the affluent have provided for the medical/dental expenses of their adult children and/or grandchildren.
During the next ten years, the affluent population in America (defined as those with a net worth of $1 million or more) will increasefive to seven times faster than the household population in general. Directly paralleling this growth, the affluent population will produce significantly more children and grandchildren than in the past. Economic outpatient care will increase greatly during this period. The number of estates in the $1 million or more range will increase by 246 percent during the next decade; these estates will be valued (in 1990 constant dollars) at a total of more than $2 trillion! But nearly the same amount will be distributed before millionaire parents become decedents. Much of this wealth will be distributed by so-called pre-decedent affluent parents and grandparents to their children/grandchildren.
The costs to provide outpatient care will also increase substantially in the future. Private school tuition, foreign luxury automobiles, homes in fashionable suburbs, cosmetic medical and dental services, law school tuition, and many other EOC items are increasing at rates that greatly exceed the general cost-of- living index.
In addition, as our population ages, more and more affluent parents and grandparents are reaching the age of estate tax realization. Widows and widowers especially are becoming more aware that the government can take 55 percent or more of their estate via estate tax mandates. Thus, as the affluent grow older, they will increase the size and incidence of their EOC in order to reduce the tax burden on their estates.
(154 of 277)
No comments:
Post a Comment