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Financial Planning > Trusts and Estates > Estate Planning

How ‘Gray Divorce’ Complicates Estate Planning

By Michael S. Fischer

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Divorce among couples 50 and older is increasing, as are life expectancy and health care costs, and estate planners and attorneys are watching this trend play out in often negative ways among their clients, according to TD Wealth.

“Gray divorce is adding another layer of complexity to the estate planning process that already arises with blended families, designation of heirs and the ever-changing domestic structures,” Raymond Radigan, head of private trust at TD Wealth, said in a statement.

“As a result, it’s more important than ever to proactively review and discuss the estate plans with our clients and their families on an ongoing basis.”

TD Wealth surveyed 112 participants in the 54th Annual Heckerling Institute on Estate Planning in January. Respondents included attorneys, trust officers, accountants, charitable giving professionals, insurance advisors, elder law specialists, wealth management professionals, educators and nonprofit advisors.

Two in five respondents said gray divorce was causing a rise in family conflict, already a significant challenge within estate planning.

In addition, 39% said retirement planning and funding were highly affected estate planning factors for divorcing couples over age 50.

Respondents noted that divorce among mature adults also influences decisions about who will be responsible for enacting power of attorney, determining appropriate Social Security benefits and drafting a will.

One wealth advisor recently opined that divorce at any age does not have to be contentious.

In its survey, TD Wealth looked beyond gray divorce to more traditional causes of family conflict for those engaged in estate planning.

Forty-three percent of estate planners and attorneys said not communicating the estate plan with family members was the most common cause of conflict, followed by dealing with blended families, cited by 29%.

Only 13% of respondents reported that designation of beneficiaries was a cause for conflict in 2020, well down from 30% who said this in the 2019 survey.

“While the purpose of estate planning is concrete, the factors and threats involved are far from it,” Radigan said. “The goal for any estate planner should be to effectively cut through the noise and distractions to build stable plans with our clients and their loved ones.”

Other Threats to Estate Planning

In TD Wealth’s 2018 and 2019 surveys, participants identified family conflict as the leading threat to estate planning. In the 2020 survey, however, estate planners were split about the source of threats:

  • Family conflict – 25%
  • Tax reform – 25%
  • Prolonged life expectancy and increased health care costs – 25%

The survey results showed that tax reform continues to have a big effect on estates and trusts. In response, estate planners are reconsidering the implementation of traditional strategies to work with the exemption, rather than treat it as an obstacle.

Thirty-nine percent of respondents said they suggested to clients to gift now when exemption is high.

At the same time, 23% of respondents suggested advising clients to consider trusts to protect assets from future claims, and 20% suggested planning to minimize future capital gains tax consequences.

“With changes among family structure and tax policies, paired with the fact that people are living longer with rising healthcare costs, the estate planning industry has to reflect these factors in their approach,” Radigan said.

TD Wealth, he said, is advising some its clients to consider retaining more now — even though the exemption is higher on gifting now — because people are living longer and costs attendant on greater longevity are affecting their estate plans.

— Related on ThinkAdvisor:

Michael S. Fischer

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