Longevity and its Implications

Take-Away: A recent article noted the dramatic change in the longevity of individuals with reference to their income levels. The import of that study is that current life expectancy tables understate the actual life expectancy of wealthy individuals, which disparity should lead them to plan more aggressively for their longer life expectancies, and before the tax laws change again.

Source:  Simone Foxman, “U.S Billionaires are Living Longer Than Ever, Making Heirs Wait,” April 3, 2019 Bloomberg

Ms. Foxman’s article reports: “Men in the top one-fifth of America by income born in 1960 can on average expect to reach almost 89, seven years more than their equally wealthy brethren born in 1930. (Life expectancy for men in the bottom wealth quintile remained roughly stable at 76.)”

Planning Implications: These longevity statistics show a wealthy individual will live substantially longer than their reported life expectancy under existing IRS’ tables. Consequently, use of those tables will understate the actual life expectancy for wealthy clients. This should motivate individuals to adopt some of the planning strategies that rely on those life expectancy tables to value retained interests, e.g. the use of a longer-term grantor retained annuity trust (GRAT); charitable remainder trusts (CRTs); the terms of a promissory note given when appreciated assets are sold to an intentionally defective grantor trust.

Legislative Implications: Equally compelling from these surprising longevity statistics will be the renewed incentives for political proposals for universal health care, to be paid by new, high, taxes imposed on the wealthy who arguably have benefited from their easier access to health care that contributed to their much longer life expectancies. Bernie Sanders and Elizabeth Warren are certain to take interest in these statistics as election rhetoric heats up in the months to come.