Rethinking Inheritance

[Route246]

Not thinking so much about our assets and pass down to heirs but what about anecdotal tales of inheritances observed and perhaps experienced with friends, colleagues, classmates and family members (heirs). In the aggregate I can think of many instances where it was neutral to negative and few instances where it was productive and entirely positive. I think of the following cases off the top of my head:

• Positive - dentist handed off practice to his son who ran a successful practice to this day
• Positive - relatives who inherited and sunk it into a down payment resulting in domiciling and gaining equity
• Positive - those who spent it on higher education and emerged with little or no student loan debt as a result
• Positive - saved the majority of assets, invested in equities and fixed income securities
• Neutral - paid off debts, did not squander on lifestyle upgrades, saved a significant portion
• Neutral - BTD on some but not all, saved the rest, respected legacy savings
• Negative - immediately quit job (not retired), squandered money, treated windfall as a lottery winning
• Negative - upgraded lifestyle, treated windfall as a paycheck bonus

I know of many instances where heirs were simply waiting for someone to die in order to secure their entitled paycheck. I know of many instances where heirs fought with each other to get their "fair share" and where lawyers took a significant cut, in a few instances the lawyers got everything. I know for a fact where heirs have been demotivated from going out and working hard, taking chances and being driven to be successful. The looming inheritance has demotivated them where they become trust fund babies and really squander any talent potential they may possess.

It is such a tragedy when I see and know someone's parents work so hard to provide a financial legacy for their children only to see their dysfunctional children fighting over the prize after Mom or Dad dies. A classmate from college is in that situation now, father died 5 years ago intestate and the children have been fighting ever since. The estate was over 5M when he died and lawyers have sucked off more than half so far and they are not going to quit until they get the whole thing. These kids all hate each other so much now that it can never end amicably. They already sold one house and the entire proceeds went to pay legal bills which is unbelievable. The family court judge is a lawyer so it is obvious who she is going to favor in this matter.

I knew both parents and they are both turning over in their graves now, screaming at their children. The father would "jokingly" threaten to give the entire estate to the local humane society because he know they did not get along. Why he died intestate is beyond belief, I guess he was holding out to see what to do and by that time it was too late.

I'm beginning to think we should give the vast majority of our assets to something we hold dear and leave comfortable but token amounts to our heirs.

 

[RunningBum]

Sad story about the person you know but their parents did not work hard enough to leave a financial legacy if they didn't have a will. Inexcusable, and the result seems predictable.

I'd say someone who paid off their debts and saved a significant portion is Positive.

The biggest negative I see is if someone has a drug or gambling problem and not only blows the money but also their health. If you fear that, or even just reckless spending, maybe you set up a trust and hire a trustee to administer it.

I don't have anything going to charities upon my death except for what's already in my DAF, but maybe I will reconsider some day. For now I'm happy with my allocation, which is mostly done through beneficiary designations and TODs on my VG taxable account and my house. I have a will to cover the rest.

 

[SecondCor521]

While it's a big job, I think it's possible to indoctrinate / train / raise children to (a) not fight with each other over money, and (b) handle an inheritance well. My parents did it, and I think I'm doing it with my kids. But it's possible that I am just lucky and naive.

 

[Texas Proud]

Why do you say negative on upgrading lifestyle? I would hope that anybody who gets my money will actually use it for their happiness...

Now, there is a difference in upgrading and squandering it... I have see the latter... but it was not a huge amount of money..

 

[Koolau]

Inheritance brings out true character of the recipients - before the distribution and, especially after. YMMV

 

[euro]

Inheritance brings out true character of the recipients - before the distribution and, especially after. YMMV

+1

 

[marko]

IMO there's two types of inheritances. One is a small inheritance, maybe under $200k-$500k which is a nice boost but not life changing.

The other is one that is a life changing amount. Several millions of dollars.

I've seen far too many inheritances in the latter that have had catastrophic results. I find it unconscionable how people can leave large sums of money to those that they know, they know are ill prepared to handle it. Might as well hand them a loaded gun.

I went to school with kids who couldn't wait for their trust fund to kick in. Half of them were prepared and did ok. The other half were dead, or should've been before their 30th birthday.

Shame on the benefactors, when there's so many avenues to do it right and protect those who they know are vulnerable! With large sums, shame on you if your children are fighting! This should've been settled and understood when they were teenagers.

With large sums, heirs need to know of what's coming and at an early age (young teens, IMO) need to learn about responsible management and the pitfalls of such, at least on a high level.

 

[FlaGator]

While it's a big job, I think it's possible to indoctrinate / train / raise children to (a) not fight with each other over money, and (b) handle an inheritance well. My parents did it, and I think I'm doing it with my kids. But it's possible that I am just lucky and naive.

I'm with you and hope I'm doing that as well. Best of luck to both of us, and those of similar mind.

I don't expect to be in the upper bracket Marko described, but things could work out better than I expect if I live long enough and the market/economy is favorable. Hope I have prepared my kids along the way.

 

[CRLLS]

While it's a big job, I think it's possible to indoctrinate / train / raise children to (a) not fight with each other over money, and (b) handle an inheritance well. My parents did it, and I think I'm doing it with my kids. But it's possible that I am just lucky and naive.

I think that you are both. You can teach the kids, but you cannot learn it for them. I have seen 2 kids in the same family end up with totally different levels of financial responsibility.

I have friends whose children inherited a fair amount of money from their grandparents. One ended up filing for bankruptcy, the other is working the system and his/her parents. I guess that is an example of financial savvy.

I really don't worry about inheritance. it is very likely there will be plenty for everybody. That is, if we both don't end up in memory care. My biggest concern is not for our kids, it is the grandkids. Hopefully, our Will covers that.

I don't understand how families can fight over inheritance. Even with a Will, contesting that will can cost lots of money defending it and it affects every beneficiary.

 

[GrayHare]

IMO those looking to leave an inheritance should in advance gift small amounts to their potential beneficiaries and observe what the recipients do with the money. It will supply a small preview of what the recipients are likely to do with a larger sum.

 

[Koolau]

I don't understand how families can fight over inheritance. Even with a Will, contesting that will can cost lots of money defending it and it affects every beneficiary.

Unfortunately, greed knows no bounds. I think it's more about not letting one person get more than another. IOW respecting the wishes of parents (or those passing an inheritance) are ignored by greedy recipients. Either one person gets what they want or they will make certain that everyone loses. Makes no sense, but it's the way of the world in so many cases. Truly sad.

 

[Route246]

Why do you say negative on upgrading lifestyle? I would hope that anybody who gets my money will actually use it for their happiness...

Now, there is a difference in upgrading and squandering it... I have see the latter... but it was not a huge amount of money..

Good point. Let me explain what I meant. First, I have always lived below my means, even when I was a poor college student and young engineer driving a hand-me-down car, eating Kraft macaroni and cheese and otherwise living modestly until I acquired standing and savings. In my 20s I knew I was going to inherit but never thought to ever need to rely on it and I actually did not inherit until 40 years later, long beyond when the inheritance made any difference and I was fortunate that my mother lived to age 89 and my father to 99, for that I was blessed. My parents worked hard and saved and also lived well below their means. What I meant regarding upgrading lifestyle is more about depleting the asset instead of living off the interest. That will never sustain itself and the eventuality is the money is gone at some point but the upgraded lifestyle remains. I have seen many who start depleting their inheritance and it is eventually gone, in some cases much sooner than expected.

Inheritance brings out true character of the recipients - before the distribution and, especially after. YMMV

Very true. I remember hearing one person say about her friend that when she attended the wake there was great relief that her mother finally died because they really needed the money. It is OK to think this but to verbalize it is just off. Shaking my head.

 

[Koolau]

DW's parents left nothing at the end and mine left about $2000 after final expenses. Nothing to fight about means - no fighting. Much better than fighting over millions in my humble opinion but YMMV.

 

[The Cosmic Avenger]

I agree with @RunningBum's observation that "Neutral - paid off debts, did not squander on lifestyle upgrades, saved a significant portion" is a positive to me -- that's pretty much what we did! My rule of thumb is 10% of windfalls for splurging, although mine have been in the 6-digit range. We leveraged my inheritances by paying off cars and a home improvement loan, but then kept putting most (not all) of that monthly payment aside for future cars or home improvement projects. The first and smaller of the two inheritances actually got mostly spent....because we used the opportunity to max out our retirement savings even though it was a really big pay hit, but then made withdrawals from the inherited funds to supplement our budget, which kick-started our retirement savings. By the time the inherited funds were mostly gone, we could afford to keep the IRAs and 401(k)s maxed out on our own.

 

[FIREd]

I've had intimate knowledge of only a few inheritance and on the whole it tends to be neutral to negative.

On my maternal grand-parents' side, there was no will. The 3 daughters argued for a while, trying to split the assets in a "fair" manner. However each one of the daughters had their own definition of "fair" ("I have more children than you, I should have more!"). The major assets (house and accounts) ended up being split equally amongst the 3 daughters while they fought over some personal possessions. However, they live in a place where an inheritance is taxed as income (there is no estate tax but there is an inheritance tax), so the 3 daughters netted very different amount after tax as some had higher incomes and were taxed at a higher rate. It created some bitterness and resentment - which still lingers to this day though the 3 sisters get along well enough. My mother promptly spent her share of the inheritance while her sisters gave most of their share away to their children to help them purchase their first home.

On my paternal grand-parents's side, there was no will either and it turned into an all-out war and it tore up the family. Fifteen years on, the battle lines are still drawn between my dad and his brother (and their respective family, though I recently made an overture towards my cousin with whom I grew up). My uncle ended up getting the lion's share of the inheritance because my dad refused to fight for his fair share in order to keep the peace. It failed miserably since his brother still ended up mad at him (I guess he wanted it all) and decided to stop talking to my dad after the estate was settled. My dad regrets not fighting for his share to this day, though he's not bitter about it. He's financially successful in his own right and the extra money would not have changed his lifestyle significantly. Both brothers have been good steward of their share of the inheritance though.

My parents are both still alive. I don't think that my parents have a will as they shy away from the topic. Personally I fear a repeat of the paternal side's scenario with my sister. I am financially independent and she lives paycheck to paycheck. She already talks about the inheritance as if it was all hers (or should be). She is not hiding her plans: she wants to sell it all and enjoy the money. She has no retirement savings yet she plans on an early retirement. So it says it all right here. But if there is no will, then everything will remain shared property and she won't be able to sell a thing without my approval. So it gives me some leverage which, unlike my dad, I won't hesitate to use.

As far as my own estate goes, I have drawn a will and decided to give each one of my close family members an identical sum of money (in an attempt to diffuse any jealousy, but who am I kidding). What's left of my estate (the bulk) is to go to charity.

 

[RunningBum]

I've had intimate knowledge of only a few inheritance and on the whole it tends to be neutral to negative.

On my maternal grand-parents' side, there was no will. ...


On my paternal grand-parents's side, there was no will either ...

Again, these experiences are when there is no will and I don't think they apply to the OP's question.

For people who have a full estate plan these aren't really examples to look at when trying to decide whether to leave your heirs with a lot of money or to direct it to favorite charities. Hopefully everyone here has a solid estate plan. Even if you have no heirs isn't it better to leave it to a good charity rather than to lawyers representing distant and long-lost relatives?

 

[FIREd]

Again, these experiences are when there is no will and I don't think they apply to the OP's question.

For people who have a full estate plan these aren't really examples to look at when trying to decide whether to leave your heirs with a lot of money or to direct it to favorite charities. Hopefully everyone here has a solid estate plan. Even if you have no heirs isn't it better to leave it to a good charity rather than to lawyers representing distant and long-lost relatives?

My post was meant to highlight the fact that the human factor is the wild card in any inheritance. Estate planning is like using your rational mind to plan for an emotionally-charged event. If you are dealing with emotionally-mature individuals it might very well go as planned. But you should at least expect some surprises because many people tie emotions to that estate. I know people who see an inheritance as compensation for things that their parents did not provide, some see it as a proof of love, etc... So the legal side might be laced nicely, but it does not mean that there won't be unintended consequences. In my case, I am certain that my uncle would be stopped talking to my dad even if my grandfather had drawn up a will. He just felt like it was supposed to get everything.

As for the second part... I have no children and I am not married. I see no point in leaving money to distant relatives (If I don't know them they might as well not exist). At this time, I have decided to leave $100K to each one of my close relatives (2 parents, 1 step mother, 1 sister, 1 niece) and to my SO (we are not married). The rest will go directly to charity. I have already chosen the charity and I have made them aware of the provision in my will. They will handle the disposition of assets.

 

[The Cosmic Avenger]

An estate plan is important, but it won't always keep personal animosity out of it. My father was the eldest and an accountant, but his younger brother had much better emotional maturity and judgement. Their parents made my uncle the executor of their estate, and my father stopped speaking to his brother after the estate was disbursed, as he claimed that accounts were liquidated in a way that cost HIM money (opportunity cost, not taxes or anything significant; it was more armchair quarterbacking than anything).
Yes, I did point out to him that it would also have cost his brother money (all funds were divided equally between 3 children), but as I said, despite being the eldest my father was not the mature one in the family.

 

[folivier]

In our trust there is a provision that any heir who contests the will or trust will automatically be excluded from any inheritance. This was suggested and put in by our estate attorney. Hopefully this will prevent any problems.

 

[pacergal]

We have been the beneficiaries of three inheritances.
DH from Grandmother and Great Uncle, both in low 5 figures. We used them to help buy furniture for our new house (some we still have too this day 40 years later), and help pay off medical bill for unexpected emergency surgery after first child was born. Both well appreciated, and totally unexpected, monies at the time.
I received an inheritance from my parents when the last one died. Both my older brother and sister were executors. Everything split equally among the 4 of us. We have used that money over the past 8 years to help our kids, pay for family vacations, and we still have about half. It boosted our retirement savings, but we would have been fine with out it on our own.

I was raised by financially savvy parents, who strongly encouraged saving and LBYM. We have done the same for our kids.
I believe there will be monies left when the last of us goes, unless we need extensive late life care.
I also believe our kids will be able to handle anything they get, most likely very low 7 figure, if firecalc is accurate.

 

[Midpack]

Maybe my position will change over time, but

• We will be gone, so where our $ residual goes we'll never know.
• We plan to leave equal amounts to 4 charities, and equal amounts to all our nieces and nephews, plus a bonus for our executor.
• If we live to our life expectancy, all the beneficiaries will have long since achieved most of their estates, so it won't matter to many/most of them. Their financial acumen, and nest eggs (or lack thereof), will be well established.

 

[RetiredHappy]

I have one offspring who is high on the spectrum of autism, who will never be able to save enough for his retirement. I helped him buy his fully paid off home, paying 2/3rd of it. My goal is to help fund his retirement through gifting and investing and for him to achieve a million dollars in savings in his name in 20 years' time when he retires. In his case, being able to feel financially secure is of utmost importance.

I worry about him everyday and to ensure that he never gets too depressed over his own limitations. I have to regularly assure him that he will never be destitute and I am always here to support him, even after death with a good size inheritance in the 7-figure range. He is very frugal, does not smoke, gamble, drink or do drugs. He has 2 Bachelor's degree but works in a minimum wage job.

 

[Teacher Terry]

My mom lived to almost 90 and my dad died much earlier. We encouraged them to travel and spend their money which they did. They were hard working blue collar workers and saved as much as they could. My mom prepaid her funeral and when she died we sold her car which paid for all the guests at her funeral to have a nice dinner at her favorite restaurant. She could easily live on her income so would have been fine if she lived longer.

When my 3rd MIL died at 67 right after retiring she left us 72k. She was in a low paying job her entire life and she planned on traveling with her money. It was incredibly sad.

2 years ago a good friend left me 20k. It was really appreciated as I had helped to care for him for a year. Bill was very frugal but loved to travel. I took a trip to Europe, installed a washer/dryer which cost 3400 includes the appliances and saved the rest.

Our condos have no hookups so it cost 2400 for them to go through the walls and install the washer. Everything has to be apartment sized which is extra expensive. It really improved my quality of life not having to use the laundry room. I probably would have done it anyway but as 2 years had passed it seemed like a lot to spend just for convenience.

 

[CaliKid]

After a career as an estate attorney I have seen most every scenario under the sun. That is, on the planning side and the after inheritance side. There is no right answer. I have seen people do poor planning (like give an inheritance to a 21 year old) and seen people manage from the grave with burdensome restrictions that don't make sense over time. Have seen people blow large sums of money including some very sad stories - drugs and gambling come to mind. Have seen people elevate themselves, get an education, etc... as well. No right answers. No one size fits all.

For me I feel like we have raised relatively smart kids BUT we are not giving them control of their funds until an older age. We have trustworthy and smart trustees in place and give them discretion to carry out distributions. To me that is the key. It's impossible to know what the future holds but I can put someone in my shoes to carry out things like I would want them carried out.

I also should say I am trying to live my life as much as possible. I don't want to be greedy but I don't want to ignore my wants and desires solely to leave the kids a load of cash. My wife and I do not see totally eye to eye on this part but close enough that we balance each other. My kids won't be homeless, and they'll be money for their kids education, and that's enough for me.

 

[Exit 2024]

We did not receive any inheritance, as both our parents died with having only free and clear housing. We let our siblings (one on each side) to have all of that. My brother was taking care of mom and dad during their last years as he lived nearby, I was traveling there but it is not the same. He deserved all of that and even more, although he is much better off than we are. Still I made a point that I do not expect anything and thankful for his efforts - it was really a lot.

On my spouse side - sister-in-law was taking care of my mother-in-law, she also have family but was renting as they could not afford to buy. At the end she still wanted to split inheritance 50/50 but we let her to have it all as she needed it more than we are. That allowed her to make huge down payment on her own housing and significantly improved her family quality of life.

But in our own case - we do not expect any fighting as we have only one child that will inherit all leftovers.
She has professional degree and earns good wages, can not say that she is a frugal, but she is trying to save for early retirement. In terms of inheritance - I am trying to arrange the way that she will inherit everything without probate.

Only headache that I have is to how educate her to keep inheritance separate that it will not count as marital assets. She does not want to hear about that as she thinks of me being too negative and already planning for her divorce while she is not even married. But I have a reason to worry - her last BF was a lawyer and when she mentioned that to him briefly (she does not even know out NW and do not think that she will ever inherit much), he started to act like he is offended and that if they get married - everything should be marital property from day 1 plus all that they both will receive later. And that would be ok if he had something too - but not, he only had tons of debt and nothing to show for it. Grateful that he is out of her life now. We can not control everything, just hope that when time will come she will remember what I am trying to tell her now.