Dying Broke
When I wrote my book Global Pension Crisis in 2013, I laid bare a rather stark reality that the world was ill-prepared to fund the Baby Boom generation other than at the extreme cost to the younger generations. I called it a “species-defining” moment for mankind since it would establish our priorities between feeding our aged (all of whom are inevitably living longer than planned) and impairing the growth and prosperity of our young. It is, indeed, a pernicious conundrum and one which has a massive rather than marginal economic hurdle attached to it. The deficit I calculated in the book was on the order of magnitude of $100 Trillion (of deficit that is) in a world that then had perhaps $150 Trillion in monetized assets in total. This seemed rather draconian and yet to my knowledge, no one has published anything more optimistic in the nine years since (though I suspect my numbers would be slightly improved on a relative basis since the economy and investment asset values in general have done quite well so far…certainly better than projected). At the time of my writing, there was one pension bear that was more bearish than I, and that was Laurence Kotlikoff of Boston University. he estimated the gap at 3-4X the size I estimated and he reached what he very scarily called “game-over” for the world economy. I wasn’t sure what that meant, but it sounded an awful lot like a return to a new Dark Ages for mankind until war and pestilence could take care of what Dickens liked to call “the surplus population”.
I have spoken to Dr. Kotlikoff once or twice and it is clear that while he and I see eye to eye on many things, he is a far more radical economist than I could ever hope to be. So, imagine my surprise when I started researching the concept of dying broke and finding the very first article on the subject in Forbes, liberally quotes Laurence Kotlikoff as a source authority on the subject. I guess it shouldn’t completely surprise me since the topics of economic future shock are linked to one another and the $12 Trillion of supposed wealth transfer that Baby Boomers are supposed to be passing on to their heirs (I suspect that number has now doubled or tripled) was touted to be the largest intergenerational wealth transfer the world has ever seen. What has brought this to my mind this fine April day is that I have been forced to redo the trust and estate plan for Kim and me by virtue of our moving to a community property state like California. That strikes me a bit like a T&E lawyers’ full-employment act, but there really are some significant differences in California law relative to New York law when it comes to inheritance, so I figured it couldn’t hurt to redo the damn thing just one more time. I do not ever plan to move out of California (never say never, right), so I’ve gone forward with the revamp and I just got emailed to me the revised documents and a flowchart explaining the plan that they propose. I am being asked to consider replacing one trust with six trusts and I would say you can color me dubious at this first blush.
I have just spent three months (going on four right now) working with two life insurance companies I have been paying into for forty years to change some trust ownership provisions and trustees. You see, my ex-lawyer, who was the original trustee transferred the duties at my request to my financial advisor (something that my employer was paying for since I was a senior executive), who transferred it to my long-time accountant, who then had the bad grace to die eight years ago. I had been lax in updating my insurance ownership provisions and had instead just been paying premiums in and accumulating excess cash value that I now want to take out to give to my kids. The whole reason for the insurance trusts back in 1991 and then again in 1996 was to avoid excessive estate taxes. Now that the estate tax exclusions have grown to such large numbers (at least for now), the whole concept of insurance trusts is somewhat moot…at least for the modestly wealthy like me.
That experience has made me wonder about the wisdom of all these added trusts. I’ve started by questioning them and I have some initial rationalizations, but Kim and I will ultimately have to make the decisions ourselves and trust me (pun intended), I lean heavily towards less use of trusts rather than more. The entire foundation of trusts in the law is to shield assets from taxation and perhaps to protect assets from bad actors who might try to take advantage of our loved ones when we are not here to beat them off with a stick. That is simply not a very compelling argument to me. If a fraudster is determined to get at my wife or children’s money, they will find a way, with or without a trust structure. As for the government, I am more a fan of liberal democracy and therefore a progressive taxation method and if my estate is so “rich” by terms of the day, then so be it that the government and society get a piece. I grant you there are lots of examples of governments doing things badly relative to the private sector, but there are equally as many examples of the private sector scamming people out of their hard earned assets as well. Thus, I feel the reasons for trusts in the first place are fairly suspect and the one lesson I am living right now is that shit changes and trusts generally don’t and then unraveling them is truly a bitch. I ran a large trust bank and I know all too well how the talon-like claws of a trust bank want to hold onto trust assets forever to keep feeding their beast, not necessarily for the benefit of the beneficiaries.
I have sent all the trust and estate legal gibberish to Kim to read on her flights home today and we will dis cuss it briefly over the weekend. My objective will be to simplify everything and make it as easy as possible for us and our beneficiaries when we die (in whichever order that happens). On the subject of order of death, I desperately hope I die first. I cannot bear the thought of losing Kim. We have joked for years that we plan to do a Thelma & Louise and just drive off a cliff together. That is, of. Purse, easier said than done. One of the other aspects of that joking thought is that we will do that when we run out of money…a testament to the notion that I am never convinced that enough (as in what I have tucked away) is ever really going to be enough. I hope for the sake of my children that I am wrong, but then again, I keep hearing about the dye broke concept. Dying broke is, according to Dr. Kotlikoff, the only sensible thing to do. It acknowledges that money handed to people through inheritance does very little good for them. They, of course, have a hard time seeing it that way, so instead, I am following that old sage advice that I want to give them enough to make their lives a little brighter, but no so much that their achievements loose meaning. The only money worth a damn is the money you make yourself. I have believed that for a long time and still do so. Now all I have to do is figure out if I can structure my estate so that I have enough money left when I die to give my kids a bit and still pay those thieving lawyers and trust administrators. That may be the best reason for trying to die broke.