Plan on what you have – not on what you may inherit

Your parents should live and be well. The question is: will they leave you an inheritance, and if so how much?

March 28, 2012 22:36
3 minute read.
Aaron Katsman

Aaron Katsman 58. (photo credit: Courtesy)


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Your parents should live and be well. The question is: will they leave you an inheritance, and if so how much? When planning for the future should you factor in 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. I think it was Metlife, the US insurance company, that 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.”

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Is anything left?

The recent financial crisis has destroyed large amounts of wealth.

Investors watched their hard-earned retirement nest eggs get crushed. Just a few years ago, soon-to-be retirees were confident about achieving retirement goals; now they don’t even know how they can afford to retire.

The Wall Street Journal reports, “Millions of families are struggling with new financial realities, including heavy losses in many retirement accounts, and more prosaic expectations for future investment returns.

Those near retirement face the hardest choices. Should they keep working for longer? Revise their retirement plans? Scale back their standard of living now to conserve money for later? One idea that should be in the mix, much to the dismay of your children: Leave less to your heirs. Or even nothing at all.”

In addition, increased longevity means more of a chance that parents will use up more money than originally planned. According to Total, “Longevity is another reason why you shouldn’t count on your parent’s inheritance to help you in retirement.

Studies have shown that if you have two parents who live to age 65, at least one is likely to live until age 90.

Not only is that a huge drain on their savings, but you also won’t actually get the inheritance until they pass away.

How old will you be when the younger of your folks turns 90? Is that when you want to begin retirement, or do you hope to already be retired by that point?”

Self reliance

When doing financial plans, when the issue of inheritance comes up, their 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 six-eight 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 your 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.

The need to know?

There are different approaches among 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.

If not, the parent can go into more detail about what the child can expect to receive.


No one likes to discus matters of death – neither the children nor the parents – not even the financial adviser.

Often, when these issues are brought up, everyone starts to squirm in their chairs. That 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.

Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the US.

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