Taking Inheritance into Account for Retirement Planning

[CoopersBeach]

Just curious to see of folks here take any inheritance they expect/hope to receive into account when doing their retirement planning.

Yes I know it may be considered insensitve, greedy, even tacky to talk about getting other people's money upon their demise. But setting aside the emotional/moral aspects of the question for a moment, do folks factor this consideration into their retirement planning (whether trust fund, life insurance policy, estate, etc.), and if so, how?

 

[traineeinvestor]

I don't assume any inheritance.

Trying to be as objective as possible about the issue:

1. I hope my parents will continue to live for a long time after I retire

2. I have no control over how they invest and spend their money. There is no certainty that there will be an inheritance (some of my mother's siblings managed to lose substantial inheritances through bad investments and excessive lifestyle). That said, if I saw evidence of a decline in the ability to manage their affairs, I would discuss with my siblings and intervene if we felt it appropriate

3. from an emotional perspective, I am happier doing it on my own (recognising that my parents have already done a lot for me, in particular funding my education)

4. I'd rather they live well and spend as they wish than feel any need to provide for me (or my siblings)

I've only had two discussions with my parents on the question of inheritance - both were initiated by them.

 

[BigNick]

I started a thread on much the same topic about 6 weeks ago here.

I was slightly surprised at the results: people seem to be very conservative about this. The most common replies seemed to suggest either extreme pessimism ("My folks might well need 20 years of nursing home care and burn through the whole pile") or a feeling that the whole matter was a little distasteful.

While I certainly wouldn't base my entire portfolio on a $500K lump sump appearing before my 60th birthday, I think that for some people, it can be legitimate to figure in different amounts with different percentages of likelihood. After all, that's what we do when we run FireCalc on any portfolio, even if we go for the "show me an SWR which would have succeeded 100% of the time" option - the sample is "only" 120 years or so. I don't see an objective reason to exclude inheritances, while at the same time assuming, for example, that stocks will return to their historical growth rates before the end of the next decade. (I believe that they will, but if I'd been retiring with a portfolio of Japanese stocks in 1990, I'd have been badly burned.)

It's also true that inheritance was never a taboo subject when I was growing up. While I didn't know my parent's net worth, I knew where all the certificates were. My Dad handled the execution of the wills of several relatives and showed me some of what it involved at the time.

DW and I can reasonably expect to inherit half each of what my mother, and her parents, leave. We can also place a reasonable present value on that in each case, because for my mother I've seen the numbers - it's one of the easier subjects of conversation when I visit - and for the in-laws, BiL has PoA and his first job was to check that their assets meet their spending requirements. So we can make assumptions based on a reasonably likely spending-down of those assets: X% chance that we will inherit 70% of PiLs' current net worth, etc.

For example, MiL is bedridden and "not all there" following multiple strokes, but built like an ox. FiL is 89 and caring for her, with cardiac issues and regular visits to have melanomas removed from his skin. We assume that he will die first and that she will need some years of nursing home care. One option in that case would be to realise some assets (probably selling the house) and purchase an "immediate needs annuity", which would guarantee her care for life while protecting the rest of the capital. It might cost half the value of the house. I don't think that that's distasteful; I would call it prudent.

 

[heyduke]

I don't assume any inheritance.

 

[rescueme]

Just curious to see of folks here take any inheritance they expect/hope to receive into account when doing their retirement planning.

I planned on receiving nothing and was not disappointed. My forecast matched reality, when the time came ....

If you truly believe there is a chance you will receive something (many years from today) and wish to "bet" your retirement on it, feel free to do so.

As for me? I planned on nothing; if there would have been a bequest, I would have just looked at it as icing on the cake...

 

[ziggy29]

I started a thread on much the same topic about 6 weeks ago here.

I was slightly surprised at the results: people seem to be very conservative about this. The most common replies seemed to suggest either extreme pessimism ("My folks might well need 20 years of nursing home care and burn through the whole pile") or a feeling that the whole matter was a little distasteful.

I think it something to keep in the back of one's mind but not something to count on.

Since my dad passed I've handled my mom's investments and done her taxes, and I will be the executor. Most likely, should she become incapacitated I will have POA over her finances. So I have a pretty accurate idea of her financial condition and what it would be divided four ways. Having said that it's her money to do with as she sees fit and it's my hope she doesn't deprive herself of what she wants in order to maximize our likely inheritances. She's always been something of a penny-pincher and more so since my dad passed, I think. She doesn't seem to be wanting for anything, the house is paid off and she has LTCI (she's 75 and healthy). In that sense she's unlikely to burn through most of it, pensions and SS generally being enough for her. So the reality is that an inheritance is pretty likely, but nothing I feel entitled to.

In my conservative estimates I enter $0 for the eventual inheritance. In the most optimistic I enter about 2/3 of what I'd likely see based on today's estate value. I guide myself along the conservative number as an expectation but realize the likelier case is not going to be zero. But again, it's her money and even if we do see some of it eventually, I have no desire to get it any time soon.

 

[donheff]

DW planned on nothing and our plans worked out as we expected But, if your parents have substantial assets and have clearly communicated their intentions it seems to me that you can figure the inheritance into your planning as well as you can any other assets. Sure, sh** happens but I think you can evaluate whether such Sh** is any more likely with their portfolio than your own. Lets face it, in the worst circumstances we can all go off the rails.

 

[BigNick]

DW planned on nothing and our plans worked out as we expected But, if your parents have substantial assets and have clearly communicated their intentions it seems to me that you can figure the inheritance into your planning as well as you can any other assets. Sure, sh** happens but I think you can evaluate whether such Sh** is any more likely with their portfolio than your own.

Of course, there's also the possibility of a negative inheritance, as happened to friends of my parents.

When their parents died in 1980, they were left with quite a nice sum of money - about $500K, which in those days would have been "instant FIRE" for a lot of people.

They put the execution in the hands of the family lawyer, to whom they'd trusted their affairs for the previous 30 years. The lawyer arranged the sale of the parents' home, cashing in of various life policies, etc... then took the money and skipped town to some country with no extradition treaty.

That would have been bad enough, but then the government came knocking... "Your parents left X, we want Y% in death duties". The fact that my parents' friends hadn't seen the money wasn't relevant; the death duties notionally come off the bequest before it's distributed. So they were looking at a $100K bill for $500K they'd never had.

In the end, they negotiated a deal with the tax people, but they were still off by their own legal costs and, of course, several months off their own life expectancy due to the "WTF" stress of the whole affair.

Lets face it, in the worst circumstances we can all go off the rails.

True... there's nothing in FireCalc for "in 2015, I'm going to get a new girlfriend, much to DW's disapproval".

 

[Moscyn]

I don't expect much inheritance - I think I will rank at the bottom amongst my siblings for reasons that my parents think that I am self-sufficient. However, I do worry that the amount of money I set aside in case my parents need financing for medical reasons may not be enough. That is my biggest headache in financially preparing for retirement.

 

[Andre1969]

I'm actually in line to receive quite a bit. I'm an only child, and on my Mom's side of the family, the only grandkid, as my uncle, Mom's brother, never had any kids.

So, in the end, everything will end up coming to me. In theory. However, there's just too much that can happen. Grandmom's 86 years old, and still fairly healthy, but beginning to decline. She could easily run up some huge medical/nursing home bills.

My uncle needs a kidney transplant, but that got put off because they found cancer. They think they got rid of it all, but he has to wait something like two years to make sure it doesn't come back. I could see him easily running up some big medical bills. He has me down for getting everything in the inheritance, but there's a strong chance there would be nothing left.

My stepdad isn't the healthiest thing in the world, either. He's younger than my Mom by 4 years, but I could see her easily outliving him. I know that if he passes away first, then when Mom passes away, I'd get everything. But, if Mom passes away first, I have no idea what would happen.

And then, there's always the distinct possibility that I could end up pissing someone off, and they just cut me from the will!

There are just too many possibilities, too many unknowns, too many things that could happen, for me to really plan on getting anything.j

I always hate to put an "expiration date" on people, but I figure 90 is a good, long time to live. Well, going by that, Grandmom theoretically has about 4 years left, but could very well live a lot longer. My Mom is 61, and my stepdad and uncle are both 58. I'm 40. So, if everybody lives to 90, then by the time my uncle and stepdad pass away, I'll be 72. And hopefully, at that point, financially set to where I wouldn't need an inheritance!

 

[BigNick]

Maybe things are different for us Europeans. We have to worry about the cost of a reasonably nice nursing home, but it tops out there. Our medical coverage means that nobody goes broke paying hospital bills.

 

[REWahoo]

Maybe things are different for us Europeans.

I nominate this as "understatement of the day".

Yes, when it comes to health care things are substantially different.

 

[73ss454]

Never got one of any importance. The next one to leave an inheritance in my family will be ME! Gulp!

 

[lowflyer]

My ability to RE is not based on any inheritance, but I do have a spreadsheet that plugs in a lump sum at some point. It's interesting to look at, but basically sets the family up for another inheritance when DW and I are gone.

Depending on how one looks at things, if you anticipated an inheritance, you might be tempted to overspend now in hopes that the inheritance will fill the hole later. That wouldn't be my approach. Instead, there is this really nice BMW I've got my eye on........

 

[REWahoo]

Never got one of any importance. The next one to leave an inheritance in my family will be ME! Gulp!

Same here. That's a sobering thought...one that makes me wish I wasn't.

 

[Khan]

Don't count an inheritance until the check has cleared.
I got ~$2K from Mother because she set up an account; I didn't care.
I assume I will get nothing from any other relatives.
I hope my relatives don't expect anything.
It's all going to friends and charities.

 

[W2R]

Never, never, never count on an inheritance. You never know what could happen.

God bless the child who has his own. YouTube - God Bless The Child - Billie Holiday (1941)

 

[Dawg52]

I think it something to keep in the back of one's mind but not something to count on.

Since my dad passed I've handled my mom's investments and done her taxes, and I will be the executor. Most likely, should she become incapacitated I will have POA over her finances. So I have a pretty accurate idea of her financial condition and what it would be divided four ways. Having said that it's her money to do with as she sees fit and it's my hope she doesn't deprive herself of what she wants in order to maximize our likely inheritances. She's always been something of a penny-pincher and more so since my dad passed, I think. She doesn't seem to be wanting for anything, the house is paid off and she has LTCI (she's 75 and healthy). In that sense she's unlikely to burn through most of it, pensions and SS generally being enough for her. So the reality is that an inheritance is pretty likely, but nothing I feel entitled to.

In my conservative estimates I enter $0 for the eventual inheritance. In the most optimistic I enter about 2/3 of what I'd likely see based on today's estate value. I guide myself along the conservative number as an expectation but realize the likelier case is not going to be zero. But again, it's her money and even if we do see some of it eventually, I have no desire to get it any time soon.

This pretty much sums up my mother's situation. I never counted on it when planning, but it is not likely she will run through it at age 92 even if she had to go to a nursing home. And I also hope I don't get it anytime soon.

 

[kcowan]

If you have a financial cashflow die-broke plan, then you can factor it in they way I did. I had four scenarios for 2 inheritances: Inheritance = 0, half x2, all x1 half x1, all x2. In each case, there were the usual conditions.

MIL went into a home just shortly before she died at 93. She was comfortable until the last two days, and she was independent until a week or so before leaving her home.

My brother was more interesting. In 2004, he needed help. I investigated a nice LTC facility for him. It would cost $1800/mo. He decided to move back home from the hospital. In 2009, he went back to the hospital. We all thought that this time he would go to the LTC facility. But he died suddenly while in the hospital, after eight weeks. He was only 70!

So the outcome was Inheritance=all x2. But, of course, we would have preferred other outcomes. Both inheritances were close in size.

In planning for the alternative outomes, the net result was that we took some more risks in buying a snowbird condo in 2007 before receiving anything. According to our cashflow plan, it was OK but it made things a little tight in the zero inheritance scenario. But it would still be manageble.

 

[toofrugalformycat]

I have never counted on an inheritance, and I feel sorry for those people I am acquainted with that do. It destroys their ambition, saps their prudence, and makes them, in the back of their minds, wish for their relatives to die sooner rather than later. No, thank you!

 

[Alan]

We never planned on an inheritance as we knew :

1. our parents did not have enough to make a significamt difference to us.

2. even if they did have enough to make a difference, we expected them to live to a ripe old age so we would never RE at 55 expecting them to die and fund our ER. (as it happens they all died within 6 months of us RE'ing)


PS
For the record, in England means testing is used to determine if nursing home fees are fully paid or not. The means testing used to include the value of their home, but not these days.

 

[Moemg]

I am in line for this inheritance unless my Sister beats me to it . I hope not because it may come in handy some day . Seriously I do not expect any inheritance which is fine .My parents gave me the gift of an education ,undying love and humor which our family has in abundance .

 

[BigNick]

For the record, in England means testing is used to determine if nursing home fees are fully paid or not. The means testing used to include the value of their home, but not these days.

Not quite true AFAICS: see here, which suggests that for "permanent" nursing home care, if there's no surviving spouse living in the home, "its value can be taken into account" (aka, they can force you to sell it).

BTW, your use of "England" is correct here. I know you know that. But the changes in the UK's governance structures over the last 10-12 years can't have made things much easier for the average American to understand... see also "Lockerbie". :roll:

 

[Gumby]

As heir to the Gumby family fortune, I know that the 28 cents will come in quite handy.

Seriously, I have been the "rich relative" since the day I graduated from college. Both of my parents live on social security and have no assets. Each of them has a younger and healthier spouse with children of their own to take up anything that would exist. I expect no inheritance and never have.

 

[W2R]

Just curious to see of folks here take any inheritance they expect/hope to receive into account when doing their retirement planning.

Yes I know it may be considered insensitve, greedy, even tacky to talk about getting other people's money upon their demise. But setting aside the emotional/moral aspects of the question for a moment, do folks factor this consideration into their retirement planning (whether trust fund, life insurance policy, estate, etc.), and if so, how?

Oh!! I just realized that my prior response did not answer your question.

In my case, keeping in mind that I probably wouldn't receive an inheritance, I made two completely separate financial plans for retirement. The main investment plan was a bare bones plan without my inheritance, and the second plan included an inheritance. This was a lot of work!!!

I was very glad that I had thought through the financial aspects of an unexpected possible inheritance and what to do with it, because it is hard to do financial planning during a time of mourning.