Preserving family capital and financing retirement homes: challenges and solutions

Protecting one's progeny is a project shared by most parents. Securing their financial future is part of this commitment, but with life expectancy increasing and the population aging, the question of financial planning for retirement is becoming more crucial. This means that parents need to plan for sufficient sources of income to support a comfortable lifestyle for an extended period after retirement. This demographic shift poses major challenges for financial management, particularly with regard to the high costs associated with healthcare and nursing home accommodation.

In recent decades, medical progress and technological advances have enabled many people to live longer.

At the same time, healthcare costs, particularly those associated with care in retirement homes and nursing homes, have risen significantly. These rising costs can put a strain on household finances, compromising the ability to preserve family wealth for future generations. On average, people enter a care home at the age of 85 for a stay of 3 years. If we consider that this represents a cost of about CHF 9,000 per month, all expenses included, a total of CHF 324,000 would need to be set aside.

This example is obviously not the only expense that can have a significant impact on your estate, but it is a good illustration of the need to anticipate and plan ahead.

When such future planning has not been organised, and there is an increasing fear of seeing family assets evaporate with the cost of care in old age, it is often tempting to make donations. This kind of transaction will not pose a problem unless the donor applies for social assistance to cover income insufficient to meet expenses of a care home. In fact, in Switzerland federal legislation governing supplementary benefits such as OASI (Old Age and Survivors Insurance or “AVS”) and IV (Invalidity Insurance or “AI”) stipulates that "the resources and assets of a person who may be entitled to benefits are included in the calculable income (for assessment purposes) even if the person has previously disposed of such assets ". As a result, entitlement to social welfare benefits for a care home is calculated as if the resident who has given away a home or part of their capital still owned it.

Jurisprudence in this area has repeatedly confirmed that a donation can be taken into account regardless of when it was made. The provision which limited the consideration of donations to the last five years prior to the application for social assistance has been removed.

Prevention is better than cure!

Establishing a family financial plan to preserve wealth offers many essential advantages.

1. Protecting accumulated capital: by carefully planning for future expenses, including health care and retirement costs, families can protect the capital they've built up over the years against unforeseen expenses or economic fluctuations.
2. Transmitting financial values and principles: family financial planning offers a unique opportunity to impart and pass on sound financial values and principles to future generations, reinforcing the culture of financial responsibility within the family.
3. Avoid family conflict: by establishing clear and transparent financial planning, families can reduce the risk of conflict and tension between family members over the management and distribution of family assets.
4. Optimise taxation: well thought-out financial planning can optimise the tax structure of family assets, reducing tax liabilities and maximising benefits for beneficiaries.
5. Preserve cultural and family heritage: preserving financial wealth often goes hand in hand with preserving cultural and family heritage. Proper planning can help maintain family traditions and preserve the family legacy for future generations.

Communicating within the family

Discussing inheritance, death or estate planning is often taboo. However, the emotional implications linked to these themes are just as important as the financial aspects. Here are a few points to consider:

1. Transmitting family values: managing and preserving family wealth is not just a question of money, but also of family values. Financial planning can be seen as a means of transmitting these values across generations, so reinforcing the emotional bond between family members.
2. Reduced stress and anxiety: the financial security provided by proper planning can help reduce stress and anxiety amongst family members, giving them the peace of mind they need to focus on other aspects of their lives.
3. Maintaining family harmony: well-structured financial planning can help prevent money-related family conflicts and tensions, thus preserving harmony and favouring cohesion within the family.
4. Strengthening intergenerational ties: i family members in the financial planning process can reinforce intergenerational ties by fostering communication and collaboration between the different generations.
5. Family pride and heritage: the preservation of family wealth can foster a sense of pride and belonging within the family, by enhancing the sense of family heritage and perpetuating family traditions and values.
6. Preparing for life transitions: by anticipating future events such as retirement or the transmission of wealth, financial planning can help family members prepare emotionally for important life transitions.

In conclusion, financial planning in order to preserve family wealth offers a multitude of tangible and intangible benefits which contribute to the long-term financial security and wellness of the family as a whole. It can even play a crucial role in the process of passing on wealth during one's lifetime to help the next generation realise their life projects. This approach strengthens family ties, reduces stress and helps to perpetuate the family legacy.

Call on a financial advisor or financial planner for personalised advice on managing your finances. A professional can help you develop a financial plan tailored to meet your needs and objectives.