Are You Counting On An Inheritance?
A recent Globe and Mail article suggested that receiving an inheritance may be a thing of the past and estate planning will be only used by high net worth people.
Early reports stated that Canada’s baby boomers are on the threshold of an enormous wealth transfer from their parents – supposedly the wealthiest generation that ever lived.
I remember the former federal finance minister rubbing his hands together as he contemplated (and proposed) an inheritance tax on the billions of dollars that would be transferred in the next 10 or 15 years.
Boomers Expect to Receive An Inheritance
A BMO survey showed that 30% of boomers expect to receive an inheritance. I have to admit that I also had this expectation in the back of my mind.
My parents were frugal (miserly, I used to think) and had a fantastic savings habit. Their investment of choice was good old Canada Savings Bonds. When they retired in their early 60’s they travelled quite a lot.
Related: How Do You Choose Your Retirement Date?
My mother was at first worried about “spending all that money” but they revisited a lot of relatives, former friends and places that they hadn’t seen in decades and I was happy to see that this was such a positive experience for them.
My parents taught me to rely on myself and not to count on non-existent chickens so I’m not relying on any money I may or may not receive.
Anyway, those earlier expectations have been considerably reduced, especially considering their house was sold at a downturn in the market, they are settled into a fairly pricey retirement home, and, now in their late 80’s are reasonably healthy for their age. But, they saved for their own retirement and I just want them to continue to live comfortably and afford the services they need.
People are Living Longer
According to the Globe and Mail article, recent census data shows that the number of people older than 100 increased 35% in the last decade to 5,825 people. It seems like not too long ago that someone who reached 100 years was entered in the Guinness Book of World Records.
Considering today’s early boomers are entering their mid 60’s and many are still in their 50’s, it’s not too much of a stretch to anticipate an exponential increase in centenarians in the next decades. It doesn’t look good, estate wise, for their own children.
Related: Turning 60 – Some Things To Consider
The Sandwich Generation
Unfortunately, many boomers are not well prepared financially for their own retirements and are expecting an inheritance windfall to reduce their debts and provide an income. Instead many may have to help their parents financially.
Related: Assisting Your Elderly Parents
Health care costs are soaring; house prices in some areas have not recovered their previous highs. Many people suffered big losses in 2008 and, with low interest rates, boomer parents are exhausting their savings to maintain their own lifestyle. They may rely on their children for help with increasing health and personal care costs at a time when their own obligations – mortgages, children’s education, children moving back home, etc – still need to be met.
Final Thoughts
Financial advisors say it’s important for families to talk about their finances. The older generation is uncomfortable disclosing details and adult children, in turn, fear coming across as greedy, but families need to establish realistic expectations.
With many boomers still in debt, the need for income is a priority. Unfortunately for potential heirs, pension and annuity payments cease at death and life insurance premiums will be diverted to extended and critical care insurance.
It may be true that inheritances and the need for estate plans will only be for the wealthy.
What do you think?
In general I think planning on an inheritance is a bad idea. It may not show up. It may be smaller than you think. The government may take it all. The only exception I can think of are family businesses where plans to pass the business to the next generation are made far in advance of the previous generation’s death.
Basically, make your own money and anything you inherit is a bonus.
After seeing a few hints at bitterness and inheritance related to my grandmother and her children I have already turned around to my parents and told them I don’t want a penny of it if they still have any money left when they pass.
I don’t think that will stop them but t’s basically me saying I don’t want any part of the negativity. Money is horrible like this!
I don’t think anyone should plan to get any.
@Forest Parks: You’re right about inheritance issues causing rifts among family members. I’ve seen lots of cases where money and certain possessions have turned people into selfish, back stabbing maniacs.
The best thing to do is have a conversation with your family and indicate ahead of time who wants (and gets) any treasured possessions. Other than that it’s best to not have any monetary expectations.
Planning to receive money from an inheritance probably isn’t the safest bet. If it was me, I would plan to cover my own costs, and then any money I end up receiving is just a bonus. I’m fairly certain that there’s no inheritance in my future.
You do make some great points. I have always been taught to work hard and anything you get extra is a bonus not something to rely on.
A child should never be expected to shoulder the financial burden(s) of a parent. Much more often than not (naysayers usually withhold some of the truth), truly destitute seniors were not wise in their financial affairs. In Canada, the government offers OAS/GIS to these people, they get free prescriptions/healthcare, and there are food programs, among other supports.
In the same manner, children are not entitled to an inheritance and should not count on one. First, it’s morbid to align your pecuniary interests with the premature death of somebody that you should love. Second, it’s their money for which they worked hard. They should enjoy it. If there’s something left over, and they don’t want to endow a charitable cause with the money, then graciously accept your inheritance and don’t squander it.
@Joe: My goal is to not be a burden to my children, financially or otherwise. If there are any assets when I die, they are welcome to distribute them as they wish.
Good post. I have worked with several clients over the years who have some expectation of an inheritance at some point in the future. In all cases we’ve done our planning for the client with that assumption in the background, we are planning as if it will not occur. As you mention things are changing and better to be prepared on their own than to count on an inheritance that might not occur or be substantially less than anticipated.
When my mother died, I did not expect an inheritance! It turns out I did get one, although modest. I do not expect to leave my children much, but they do not need it. I will porbably help support future grandchildren education.
Good post. Definitely not counting on any inheritance. My parents will be in debt until their 70s or 80s.
At least I know 🙂
Mark
I agree that an inheritance should be considered a bonus and not a financial plan. I didn’t mooch off of my parents when I bought a car, went to college, got married and bought a house. I certainly don’t expect them to fund my retirement.
It’s amazing to me how people expect an inheritance. It takes a LOT of effort to create anything substantial to leave behind. Many people don’t know how to financially plan lest live a lifestyle within their means. To wait on buying a house or paying bills you’ve accrued is insane. How entitled a person must be to plan their life around one’s life’s work!
The greed and upset caused by money left behind is tragic. People forget that they are responsible for their own lives. Waiting on someone to die for your life to begin is beyond irresponsible, it’s disgusting.
Don’t even get me started on people with substance abuse problems. Watch one’s life’s work vanish in month after a funeral.