Data & Research November 3, 2014

Blended Families Face Major Savings Challenges

Parents who are married or living together with children from a previous relationship face a challenging financial outlook, especially when it comes to retirement savings.
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According to the Allianz LoveFamilyMoney Study, blended families average only $158,600 in savings and investable assets, compared with $264,300 for traditional families (those married to someone of the opposite sex with at least one child younger than 21 living at home). Moreover, a majority (55%) of blended families say they “currently live paycheck to paycheck,” and nearly one-third (30%) cite one of their worst financial habits as “not saving any money,” versus 41% and 20%, respectively, for traditional families.

“The defining characteristic of blended families—which consist of parents who are married or living together with stepchildren and/or children from a previous relationship—is the financial baggage and commitments that they bring from their previous relationships,” explains Katie Libbe, Allianz Life vice president of consumer insights. “Blended families are survivors, but they could be burdened by the past. While children can form warm bonds with the new people in their lives, the financial scenario can be challenging.”

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Forty-three percent of blended families agree that, “My spouse/partner or I brought financial baggage to the relationship that’s difficult to overcome.” Additionally, 33% agree that “the lack of adequate financial support from my ex or my spouse’s ex is impacting my ability to save for retirement.” And while 60% of traditional families say they are on track to achieve their financial goals, only 46% of blended families share that sentiment, according to Allianz.

With the outward appearance of a well-integrated and united family front, blended households report to be very individualistic in their pursuit of financial needs and goals. Sixty-eight percent of those from blended families described their family structure and household dynamic as “focused on individual needs/goals.” This could result in blended families having multiple or competing goals, further complicating their family financial situation. On top of that, Allianz says 35% agree that “my spouse/significant other and I have different financial priorities that are difficult to navigate.”

“It’s possible that many in blended families are still picking up the pieces from a previously broken home,” Libbe notes. “This is a burden that they may feel they must tackle on their own—and likely leads to this more individualistic mindset when it comes to goals and needs. As they’re learning to navigate new financial relationships, they are likely trying to avoid repeating mistakes of the past.”

Even though only 32% of blended families say they have excellent or above-average knowledge when it comes to financial planning (contrasted with 44% of traditional families), Libbe suggests there is hope—specifically with the younger generations in the work force. Despite the challenges they face, the study reflects that blended families are doing more than both traditional families and other modern families to teach their children about money.

They’re also talking openly with their kids about their financial situation and working with them to create budgets, Allianz says. Building on that positive behavior, Libbe shares three additional tips to help create better financial harmony:

  • Develop strategies for saving and spending – Partners and spouses might come to the spending/saving discussion from very different perspectives, but they must work together to decide where they can and can’t compromise. Individuals can consider developing mock scenarios and asking their partner whether he or she would rather pay down debt or purchase a new vehicle, for example.
  • Determine roles and responsibilities – Household expenses are often a main source of friction in relationships. Determine in advance who will pay the bills and how they'll get paid. As long as you both agree that the division of responsibility is fair, it might work well to maintain separate accounts.
  • Establish mutual financial goals – Allianz urges blended families to develop a formal plan to help achieve complex financial goals. Reviewing wills and legacy planning strategies with an attorney is a good place to start. Feeling overwhelmed or can't agree? Consider consulting with a financial professional to discuss financial goals.

Libbe says the challenges faced by blended families are considerable, but not insurmountable. “And smart, pragmatic financial planning can go a long way toward making the blending of two households go more smoothly,” she adds.

The Allianz LoveFamilyMoney Study was conducted by The Futures Company via an online panel in January 2014 with more than 4,500 panel respondents ages 35 to 65 with a household income of at least $50,000.

More information about the firm and the new research is available online at http://www.allianzusa.com.

In Practice November 3, 2014

Debunking Myths of Special Needs Trusts

There is greater need for special needs financial planning, based on increasing life expectancy for some and rising diagnoses of autism, says Securian Financial Group.
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For example, life expectancy for people with Down syndrome rose from 25 years in 1983 to 60 years today. The incidence of autism among children ages 3 to 17 rose nearly 300% from 1999 to 2008, and the disorder is thought to now affect one in 50 children. The same time period saw the incidence of any kind of developmental disability jump 17% percent, the Centers for Disease Control and Prevention found.

More than ever, parents are looking for ways to ensure a high quality of life for their special  needs children well into the future, just one of several family issues that may make investors feel they cannot save for retirement.

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Caregiving may leave time for little else, and creating a long-term strategy looms as a daunting task—and misconceptions seem to grow in tandem with the demand for advice and planning services. The most common, says Channing Schmidt, senior advanced marketing counsel, Securian Financial Group, are that getting the right plan in place will be expensive, and that the matter of caring for a child with special needs is best left to family members.

Financial advisers are in a good position to help manage the planning process and develop a plan that covers every foreseeable eventuality, Securian feels. A program that provides guidance for financial advisers and their clients helps ensure that the child’s finances are handled correctly over the years and the parents’ instructions for care are followed.

Many families think this is going to be a very expensive endeavor, Schmidt says. “It won’t be cheap, but they might be surprised that it is not as expensive as they might have thought,” he tells PLANADVISER. Schmidt recommends families look at their own financial plan and work with an estate planning attorney to make sure the estate plan has provisions for the special needs trust. “There is a subset of attorneys who specialize in working with these trusts,” he says. “Talk with someone very knowledgeable and has the track record to make sure everything is done and done the right way.”

Find Referrals

A good place to start is by asking for referrals from other parents of kids with special needs, Schmidt says. Next, make sure recommended providers have the investment philosophy that will look out for the long-term and short-term interests of the child.

Choosing a trustee for any trust is critical. “The first inclination is to put a family member or trusted friend in charge of the trust,” Schmidt says, and it’s common for most parents to struggle with this decision. “Sometimes it’s a sibling, uncle, cousin,” he says. “But a lot of the time, those people have great intentions but no special ability to handle investments.”

For this reason, Securian suggests finding a corporate trustee who will be familiar with government aid, should the child with special needs be receiving benefits, and who has the investment expertise to handle some important financial decisions. “Usually they have much more experience than a family member would,” Schmidt points out.

The parents write the letter of intent—with assistance from trusted advisers and caregivers—that clearly describes how the child should be cared for. It helps the trustee and future caregivers understand the parents’ wishes as they make critical decisions about the child’s welfare and lifestyle.

Another misconception is that disinheriting the child—essentially leaving it to other family members—is the best way to ensure the child’s future will be funded. But Schmidt points out that family situations can be altered by divorce or marriage or credit issues. “Managing a large sum of money more often is best left to professional asset managers,” he says. “A corporate trustee helps ensure continuity over the decades and can help carry out the parents’ wishes as described in the letter of intent.”

Including the Family

Many families would like a family member to be part of the planning, which is understandable. Schmidt says that the corporate trust can have on its committee a family member, social worker or any other member the family feels should be included in the decision-making for input on dietary, health or other issues. Often, he says, only family members have information about the special needs person’s life or preferences.

Another funding possibility is to put some money toward a life insurance product, such as a second-to-die insurance policy. Schmidt explains that this type of policy covers two lives, usually husband and wife. The death benefit is not paid out until the death of the second spouse, so the money can go into the special needs trust. It takes a sliver of money that the couple could be saving for retirement and pays out when the child needs it most. “It is usually going to be a little less expensive than a traditional life insurance policy,” he explains.

While it can be a strain for a couple to plan for the child’s future needs while also planning for their own retirement, Schmidt is adamant that the parents prioritize and place their needs first. Using the in-flight analogy of putting on your own oxygen mask before you put on your child’s mask, he says parents must be able to handle their own retirement first. “This is definitely something that comes up,” he admits. “It is a stress to have to put aside assets for the child.”

A special needs plan has more than simply the financial component, Schmidt says. “Parents are well advised to create a team of experts and caregivers who understand the child’s financial and lifestyle needs and will help establish a plan for living that matches the parents’ wishes.

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