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Should You Spend Your Kid’s Inheritance or Preserve It?

11/04/2016

Inheritance or Preserve

Three generations of Americans—the Greatest Generation, who came of age during World War II, Baby Boomers who lived during a period of growth and social changes and Millennials, the first generation whose lifestyles may not be better than their parents—have widely different views on what an inheritance should be. While members of the oldest generation had defined benefit pensions to rely on in addition to their own retirement savings, many boomers lived large and many have not saved enough for retirement. Where does that leave millennials?

“How Much Should You Leave to Your Kids?”—an article recently published in Money—says that it’s different for baby boomers. A recent survey in MarketWatch says that 23% of pre-retirees would ideally like to spend all of their savings and let their children fend for themselves. But only 9% say they want to save as much money as they can for their kids. Those boomers with the wherewithal to leave substantial wealth behind donate their estates to charity instead of family. A few feel differently and will try to maximize family wealth passed down to the next generation.

Sacrificing while raising your kids so they can have a better life is a natural instinct for many parents. We ALL want what is best for our children. But why deny yourself in retirement just so that your grown kids can have an extravagant lifestyle after you pass away? You may fly coach, but when you are gone your children will fly first class.

If they’re mid-career, a big inheritance could be destructive and could dampen their motivation. Those who are much older and post-career probably don’t need a large inheritance.

Expecting an Inheritance. Unless your parents are so incredibly wealthy they couldn’t possibly spend all of their assets in their lifetimes, it’s risky to base your lifestyle on their health, their expenses, their investments. But unfortunately, many working people do just that. MarketWatch found that about 20% are counting on an inheritance to completely or primarily fund their retirements. Half anticipate getting enough to provide them with some support in retirement.

Preserving an Inheritance. If you’ve already received an inheritance, how does that figure into your own legacy giving? Many feel obligated to preserve and pass on at least the principal they’ve inherited to future generations, rather than consuming it themselves. But, how do you do that?

Here’s one way: if you don’t intend to spend any of the income, put the inherited money into a separate account with designated beneficiaries. You can simply pass on the entire ending balance. But if you mix the inherited assets with your own, you’d need to compute the inflated amount over your life expectancy and target that as your minimum legacy. This means some extra planning and attention.

If you are extremely wealthy, consider taking Warren Buffett’s Giving Pledge. He asked the world’s super-wealthy to leave a majority of their fortunes to nonprofits, instead of to family. Buffett says to leave children “enough money so that they would feel they could do anything, but not so much that they could do nothing.”

There is a wide range of options between leaving nothing to your children and handing them a multi-million dollar legacy. Most people agree that the idea of leaving your children what was left to you is a balanced way to share their grandparent’s legacy and provide millennials with an economic cushion at the same time. Giving to your children or charities, in the present, resources that you expected to give after you have passed has some added benefits. You get to see your children or grandchildren enjoy their inheritance, enjoy the impact that a donation has on causes that matter to you and enjoy the tax advantages.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

  • My practice is exclusively estate planning and probate,
  • I have prepared numerous estate plans in 16 years of practice,
  • I have administered estates and trusts through Probate all over Florida,
  • I am a Certified Financial Planner Professional™, and
  • I am here for YOU today and there for your FAMILY tomorrow

Reference: Money (October 10, 2016) “How Much Should You Leave to Your Kids?”

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