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.Sensitivity 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@lighthousecapital.co.il Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the US.
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?
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.Sensitivity 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@lighthousecapital.co.il Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the US.