How to balance your retirement needs with leaving fair inheritance

One of the most common conversations that I have with clients is how to balance their needs for retirement with helping their children and trying to be financially fair with them.

  (photo credit: PIXABAY)
(photo credit: PIXABAY)

“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 this week’s Torah portion, we read about the death of Aaron, the high priest (Numbers 20:25-29): “Let Aaron be gathered to his kin: He is not to enter the land that I have assigned to the Israelite people, because you disobeyed My command about the Waters of Meribah. Take Aaron and his son Eleazar and bring them up on Mount Hor. Strip Aaron of his vestments and put them on his son Eleazar. There Aaron shall be gathered unto the dead.”

While we learn the actual laws of inheritance in the Torah reading in a few weeks, here we have a pseudo-spiritual inheritance, as Aaron passes down the high priesthood to his eldest surviving son.

How to balance retirement needs with fair inheritance

One of the most common conversations that I have with clients is how to balance their needs for retirement with helping their children and trying to be financially fair with them in the present and then posthumously. Only this week, I had three meetings in which this came up. In my book Retirement GPS, I presented four different approaches of retirees:

  • I want to save as much money as possible to leave to the next generation (save now to endow after death).
  • I want to use my money during my lifetime to support the next generation (give while living).
  • I want to enjoy things during retirement that I couldn’t enjoy during my working life and leave something behind for others (enhance my standard of living and leave something behind).
  • I want to race my money to the grave and leave only enough for my burial.
A bank employee counts Israeli Shekel notes for the camera at a bank branch in Tel Aviv (credit: REUTERS)
A bank employee counts Israeli Shekel notes for the camera at a bank branch in Tel Aviv (credit: REUTERS)

From my very unscientific survey, I would say that in Israel, the overwhelming majority want to make sure that they have enough to take care of their own retirement needs, and with anything above that, they want to help out kids and grandkids while alive. The reason is that living here isn’t always so easy financially, so when their children have young families, the money is needed most, and they want to help.

The other issue is how to make gifts and then inheritance fair. If one of their children marries well, or has fewer children or they are doing well financially, should they get the same amount as another child who is struggling?

A husband and wife who are my clients have a spreadsheet, and they keep track of exactly how much they have given to each child. Then every year or two, they start gifting and moving money around to their kids to make sure each one is getting the same amount of money.

While giving more to one child than the other in a case of need is understandable, and in many cases is not even known to other siblings, when it comes to the will, I believe each child should be treated equally.

I have seen too many family squabbles over inheritance, and even if some of the children are very well off and others less so, it’s important to give everyone the same. You want to do whatever possible to prevent sibling resentment because of perceived parental favoritism. That’s baggage that the children will carry on forever.

In a fascinating article entitled “Disinheriting Disappointing Children,” Rabbi Efrem Goldberg asks whether we can incentivize our children to behave in accordance to our wishes. He cites a question to the New York Times’ “Ethicist.”

“Around a decade ago, my mom informed each of her children that she and my stepfather put a codicil in their wills disinheriting any of their children married to someone not recognized as Jewish by her local Orthodox Rabbinate. She says I’m reading too much into it. She claims she informed us in the name of ‘transparency,’ so we wouldn’t be surprised later, and that it’s her money to do with as she pleases, anyway – though she concedes that she also informed us in case it may influence decisions we make.”

You can go to his website and read the full question and the columnist’s answer, which the rabbi didn’t like. He brought his own analysis. He cites a Mishna in Baba Batra. I actually learned this with my study partner a few months ago, and we spent a lot of time trying to figure it out, so this is near and dear to my heart.

“The Mishna in Baba Batra (8:5) states that if one gives his assets to others and leaves nothing for his sons to inherit, what he has done is legally legitimate, but he has violated the spirit of the law, and so the ‘spirit of the sages’ is not pleased by him. However, Rabban Shimon ben Gamliel says that if one’s children were not acting properly, and as a result he transferred all of his assets to others, he should in fact be remembered for the good.” (The first opinion is codified into law.)

He continues: “Disinheriting, some argue, may in fact not influence the decision to intermarry but will make a journey towards conversion or observance less likely. They therefore suggest, in an effort to preserve peace and harmony in the family, to always divide the estate equally.”

The rabbi concludes: “These issues are complicated and difficult, and there isn’t one clear or correct answer. Our ethicists have much to say, but ultimately it is our hard-earned money, and we are responsible to be thoughtful, strategic, and even prescient in how it is left and where it is going. Most importantly, don’t wait to rely on finances being the factor that will trigger the choices we want. Use resources while you are here to provide, support, enable, reward, and empower a passionate, vibrant, dynamic Judaism that our descendants will want to cling to and carry on.”

While intermarriage is an extreme case, I still think his advice holds true in regular cases as well. Preserve family harmony, but don’t use inheritance to try and manipulate behavior.

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