SHOULD YOU COUNT ON AN INHERITANCE?

When working on financial plans for clients the trickiest issue that usually comes up is inheritance. Inheritance is one of those issues that no one really wants to talk about. A large US insurance company put it this way, ”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, we tend to shy away from topics, which may bring an Ayin Hara ( the evil eye).

To Know or Not to Know?

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). What I received in the form of an answer 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. 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 doing financial plans, when the issue of inheritance comes up, there initial reaction is that” we don’t want to rely on it.’ I actually like this approach. Try 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 a 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. On the other hand, if you are trying to do long-term retirement planning, and you parents are getting on in age, then I do feel it’s appropriate to get an idea of what you may receive, because in 20 years or so, this will become a reality and your retirement will also become a reality, so you need to plan for it.

Ayin Hara vs. 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.

Sensitivity

No one likes to discus matters of death, neither the children nor the parents, not even the financial advisor. Often when these issues are brought up, everyone starts to squirm in their chairs. That being said 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.

 

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, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il