SHOULD YOU BANK ON AN INHERITANCE

As originally appeared in The Jerusalem Post on November 16, 2017.

When I sit with clients and we work on their financial plans probably the trickiest issue that usually comes up is how to deal with a potential inheritance. No one really is jumping at the chance to discuss inheritance, because of what it implies. As a large US insurance company said, “Inheriting money is bittersweet. Although someone you cared about is gone, that person thought enough of you to leave you a portion of his or her hard-earned money.” 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.

Is Knowledge Bliss?

I recently sat with a couple and we were going through their various assets, and 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 her parents were open with her and the rest of her siblings and she knew more or less what they owned and what her inheritance would be. The husband had no clue whatsoever as to what his parents’ financial situation is and said that his parents never speak about such issues. Many older parents prefer secrecy regarding financial matters. In some cases, this is justified because their children may not be able to properly deal with the information. Some financial advisors would say, alternatively, if you are in this stage in life, be aware that your children’s lack of information may be leading them to poor financial decisions.

Don’t Rely on It

When creating 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 happens to be my preferred approach. Many who know me may think the reason is that since I was raised in a home where one parent was an avid evil-eye avoider! That’s not my reason. Rather I am a firm believer in planning your finances 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 6-8 years they are going to come into a large inheritance. The problem is that in most cases you have no way to know when you are going to get this money. In addition as many learned the hard way in the financial crisis of 2008, things happen that can significantly impact ones net-worth negatively.

Need 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 believe in a much more subtle, respectful approach. 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 advisor. Often when these issues are brought up, everyone starts to squirm in their chairs. If possible, it’s important to open the lines of communication between parents and their children so that all sides know what to expect and that there will be no inflated expectations. But if the parents aren’t forthcoming- don’t press them. 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 author of the book 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, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.