Hoping for an Inheritance? Planning to leave your kids money?

[ElainePDX]

With apologies to those who can't get behind the NYT paywall, this appeared on 9/19/14. Given that we have a range of age groups here, and attitudes seem to vary by generation, I thought this might be of interest to some and perhaps it will provoke a conversation - either here or with your family!

http://www.nytimes.com/2014/09/20/your-money/estate-planning/parents-the-children-will-be-fine-spend-their-inheritance-now.html?action=click&pgtype=Homepage&module=c-column-middle-span-region&region=c-column-middle-span-region&WT.nav=c-column-middle-span-region&src=dayp&_r=0

 

[Matt]

Yep, I also shared this earlier in the week on Twitter, I think there are a lot of interesting areas for discussion - the paywall can be sidestepped by Incognito mode, for those of you who were wondering, not that I advise you to do so etc...

 

[ElainePDX]

OK, I'll make one comment re: why older parents may want to leave $$ to adult children, or, more broadly, why some parents who have the means may want to help adult children financially or with such things as childcare/tuition assistance. We were blessed with generous parents ourselves.

While we bought our first house with no help from anyone - it cost $30,900 and we put down 5%! - we were very grateful when our parents offered to give us some cash towards a down payment 11 years later. We didn't ask, but they came to us, suggesting we could buy a little bit nicer property if we had a little more cash in hand. We were most grateful. Now that we have adult kids, we are happy to pay it forward.

 

[Matt]

These two things, while in the same vein are quite different. The broader subject is to support your children or not, but as to the 'when' that makes quite the difference. If you support them by just dumping (in a nice way) whatever assets you have left over at 'the end' it is a very different thing from strategically helping them along the way.

Inheritances are a very touchy subject for most people, which is something to break through - if you DO intend to leave something, and it does seem possible to do so, then having a structured gifting plan makes a huge difference.. for example, if you have a child that has $50,000 Net Worth at age 30, and a parent of 65 with $5M - in isolation you would say that the child should be 100% in equities, but if you considered a portion of the $5M an inheritance that would be received at some point, it might make the allocation of the original $50K improper for the age. As such, by not talking about the elephant in the room, the child is taking on more risk than is necessary.

The flip side, and it again occurs with dysfunctional communication, is an expectation of receipt of wealth, I have seen this cripple relationships, and also destroy ambition within a child.

 

[Haley]

That article looked at intentions, but I don't think they ever mentioned the very large disparity between intention in this area and outcomes.

My father will to leave us something because his mother left money to him. In his case it is very much a point of pride, but also tradition. He will not consider generation skipping because that isn't the tradition.

Matt, I agree about structured gifting. Maybe less for allocation reasons and more for tax reasons, but either way requires communication.

Elaine, my parents did the same thing for us and also for all of my siblings.

 

[Matt]

Matt, I agree about structured gifting. Maybe less for allocation reasons and more for tax reasons, but either way requires communication.

These days, the tax reasons are pretty reasonable other than in states with state estate taxes. Many folk aren't talking about inheriting over 10M

 

[SanSan]

I think that in some ways, a person who is expecting a large inheritance can handicap themselves financially. This may sound backwards, but I speak from personal experience. I have a close family member with a decent amount of assets... but I am fairly sure it is not coming my way. Other family members seem to have this idea that "it won't be long..." Quite frankly, they know the money is out there that will take care of them at some point, and this has made them lazy. When I first read "The Millionaire Next Door", and "The Millionaire Woman Next Door," I realized that this phenomena is not uncommon.

 

[SanSan]

I would also add this-- the people I know who have a large financial safety net (ie: Parents who help out on a regular basis), don't seem to have quite the financial acumen as some who have been forced, out of necessity, to be more self reliant.