How to treat expected inheritance in financial planning

As originally appeared in The Jerusalem Post on November 12, 2022.

A son can bear with equanimity the loss of his father, but the loss of his inheritance may drive him to despair. – Niccolo Machiavelli

In my learning with my study partner, we have spent the last few years learning the Talmudic tractate of Baba Batra. A few months ago we got to the chapter dealing with laws of inheritance.

Personally, I find it fascinating as it touches on issues I tangentially deal with regularly. I often tell people that issues of inheritance can tear apart the best of families. I am often met with a shrug and, “That may be true in other families, but my kids all get along great and nothing bad will happen.” From experience, I can tell you that that approach just doesn’t always work out. Each sibling has their own agenda regarding what to do with the money and if things aren’t spelled out clearly in a will, then bad things can happen.

As Rashi comments, Ham said to his brothers, “Adam had two sons, and one killed the other because of the inheritance of the world” (Rashi, 4:25) In fact the whole book of Genesis is full of sibling quarrels, including murder and attempted murder, especially when it comes to special rights given to the firstborn. (Examples include Cain, Ishmael, Esau, and Yosef).

I’ll leave how to create equality in estate planning for another column. I’d like to focus on whether one should count on an inheritance or not when doing financial planning. One of the more complicated issues when doing financial plans for clients is how to relate to an expected inheritance. On the one hand, if you are expecting a sizeable amount, burying your head in the sand is unrealistic, on the other hand, the whole issue is rather morbid.

While for financial planning purposes it’s important to know what type of inheritance you will be receiving, Jews especially tend to shy away from such topics, which may bring an Ayin Hara – the evil eye.

Elderly parents

Maybe it’s the fact that I am no longer 25 but the lion’s share of meetings I have, or conversations with friends, center on issues of caring for elderly parents. Obviously, as an extension of the topic, the issue of inheritance becomes relevant. Earlier in the week, I met a couple and this issue came up.

As we were going through their various assets, they seemed a bit too calm about their financial situation based on the numbers they gave me, so I asked them if they had any idea as to what they may receive (their parents should live to 120). I received an answer that typified the approach parents take to this issue.

The wife said that she had no clue as to her parent’s assets, as they never spoke about it. The husband knew he was coming into a very sizeable amount of money, and potentially soon as his only remaining parent wasn’t in good health (she should have a speedy recovery).

Do it yourself

When doing financial plans, when the issue of inheritance comes up, usually the knee-jerk initial reaction is that “we don’t want to rely on it.” This is generally my approach. Though I was raised in a home where my mother, of blessed memory, took the evil-eye very seriously, that’s not my reason for not wanting to rely on an inheritance.

It’s because I strongly believe in planning based on what you have, not what you may or may not receive. If you are planning to buy a house, figure your price based on your current assets. I too often see people “over-buy” i.e. buy more than they can afford, because they estimate that in a 7-10 years they are going to come into a large inheritance.

There are two problems with this.

1. In most cases you have no idea as to when you are going to get this money
2. As many have learned the hard way over the last 11 months in the stock market, things happen that can significantly impact ones net-worth negatively.

To know or not to know?

There are different approaches amongst financial planners with how to deal with the issue of potential inheritance. There are those who say that the children should ask point blank, what they should expect as an inheritance, or as a gift, and then they can plan accordingly. I really don’t like that approach.

I prefer a more subtle approach. If the parents have volunteered even a little information about their finances, then after completing a financial plan, the child should approach the parents and explain the situation and ask if assumptions that were used in the plan are reasonable and if so, enough said; and if not the parent can go into more detail, about what the child can expect to receive. If the parent is clearly uncomfortable discussing these matters, then let it go. After all, honoring one’s parents must take precedence.

Understanding

No one likes to discuss matters of death, neither the children nor the parents, and believe it or not, not even the financial adviser. If the parents are forthcoming, great, have a discussion. If not, drop it. Just live with what you have.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.