Author Topic: Factoring inheritance  (Read 9269 times)

Retire-Canada

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Re: Factoring inheritance
« Reply #50 on: August 15, 2017, 03:14:08 PM »
It's probably a lame question to ask, maybe even not respectful of one's parents.

Do you guys actually factor in wealth that will be passed down to you? My parents mentioned that they have 2-3 property that they will give the kids us, is it disrespectful or unwise to factor this?

I may get something like $100K from my mother's estate. She is 90, but I don't count that money because it's not mine. Due to any number of circumstances I may not actually get it so what's the point of planning on it?

I just worry about things I am in full control of [my spending and investing] and if some money comes my way at some point I'll gratefully accept it and adjust my plans accordingly.

iris lily

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Re: Factoring inheritance
« Reply #51 on: August 16, 2017, 08:33:34 AM »
We've watched a few inheritances go through Medicaid spend-down now, so while we're aware it could happen, we presume it is more likely it won't.  Neither set of parents has taken steps to protect their assets from end-of-life expenses, such as LTC insurance.
Another way to express this is that both sets of parents are saving their money to pay for their (possible) healthcare services, ones needed when they are aged. What a concept, paying for services you use.

sehr

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Re: Factoring inheritance
« Reply #52 on: August 16, 2017, 08:52:43 AM »
While I understand that end of life care might eat up my dad's wealth despite having long term care insurance, I am planning to get an inheritance from my dad like I did from my mom. It's one of the few advantages of being an only child.

Being good with money is a family trait he inherited. My father's mother died at 99 and managed to leave almost a million dollars, despite paying for my braces, most of my college education and who knows what for my cousins. My dad will probably do something similar. One of the main reasons I try to be good with money is because I believe that I too will need to provide for the generation(s) that will follow me. I realize the main reason I happen to have a positive net worth besides possessing a bit of self discipline is because of their wealth, both directly when my dad helped me buy a house and indirectly though education.

alexpkeaton

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Re: Factoring inheritance
« Reply #53 on: August 16, 2017, 11:07:25 AM »
My parents give me and my two brothers between $5-10k/year while they're still alive. It hasn't always been exactly even due to me and my siblings' varying needs for the cash at a given time, but my dad keeps a spreadsheet and mails us all copies, so we all know where we stand should my parents unexpectedly pass away before we're all squared up.

Reasons for advances on our annual distributions:
  • Older brother bought an apartment building. The money was initially a loan for part of the down payment, but after the housing crash it turned into a gift.
  • Younger brother married a foreigner for a very LCOL country. It cost a lot of money to fly her family to the US and pay their expenses while they were here.
  • I needed help show more liquid assets when applying to buy an apartment in NYC.
From my parents perspective, it's much better to get rid of the money while they're alive rather than spend it on long-term care. They're comfortable enough with savings, pension, and social security that they have enough excess income that they can do this for us.

I don't expect there will be more than a couple hundred thousand dollars in their estate, but possibly zero, and since it will be split three ways and might be 20+ years from now, I'm not planning on anything other than the occasional $5-10k check in the mail. Always a nice surprise when one shows up.
« Last Edit: August 16, 2017, 11:09:26 AM by alexpkeaton »

Dicey

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Re: Factoring inheritance
« Reply #54 on: August 16, 2017, 01:47:50 PM »
When I thought about it, inheritance only makes a meaningful impact if you receive it at a time when you are collecting assets or pinched for cash flow.
Ooh Goldielocks , this is pure...gold. I'm co-executor for my late parent's estate. For multiple reasons, the money is being disbursed in dribs and drabs. Everyone else is fine with this, because they don't need the money for day-to-day living, even if they'really not yet FI or RE. However one sister depended on my parents her whole life. Now she burns through each check and then demands more. Apparently one can tell when she's received a check by the photos she posts on Facebook, mostly in bars and restaurants. For a time, we were fine to get these estate tangles resolved without undue haste. We hoped it would help her get a leg up financially. Now that we realize the futility of that, we're trying to wrap things up as soon as possible, even if we incur more fees to do so. Your observation helps me understand that in her mind, she does NEED it. God help the rest of us when the money's been disbursed and her share is gone. Oh well, at least we won't have to wait long to see how this plays out.
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dreams_and_discoveries

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Re: Factoring inheritance
« Reply #55 on: August 16, 2017, 02:44:14 PM »
You know, I'm getting more and more anti inheritance lately,  I see it perpetuating inequality and hindering social mobility.

Not surprising you feel this way.  The sole purpose of inheritance is (and always has been) to give a child an unearned advantage over others.

Are you suggesting the government establishing a 100% estate tax?  How would you implement this ban on inheritances?  Whatever happens, rich people will figure out loopholes to get the money to their kids.

Also, I'd rather be a poor person with 2 healthy parents than a rich one with 2 dead parents.  I don't think orphans necessarily have an advantage over others as they lose out on the wisdom and family love that parents provide.

Yeah, I do actually believe that inheritance tax should increase, and things like trust funds be heavily taxed.

The challenge in implementing such a policy is that people will always try to get round it, and create new structures to funnel wealth from one generation to the next. Not to mention the challenges of getting a policy like this passed...  But you know, it's always nice to dream of my own mini utopia, where hard-work and intelligence is rewarded, and everyone has en equal start in life.

Goldielocks

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Re: Factoring inheritance
« Reply #56 on: August 16, 2017, 03:37:33 PM »
^^ dreams^^

I think the opposite.  Inheritance tax is a "wealth tax" that penalizes people for accumulating assets.  Saving should not be inherently "wrong".   I think estate and inheritance taxes should be eliminated.

Rather -- the US should eliminate the "Stepped up" basis for inheriting capital assets tax free.   That shelters so much income / gain from EVER having to pay taxes, and it encourages older generations to hang on to assets until death, instead of liquidating them for other uses earlier.

The only exception would be allowing a spouse to roll over assets, (to defer taxes) but not allow a stepped up cost basis -- eventually the full taxes will be paid.

boarder42

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Re: Factoring inheritance
« Reply #57 on: August 16, 2017, 05:07:45 PM »
You know, I'm getting more and more anti inheritance lately,  I see it perpetuating inequality and hindering social mobility.

Not surprising you feel this way.  The sole purpose of inheritance is (and always has been) to give a child an unearned advantage over others.

Are you suggesting the government establishing a 100% estate tax?  How would you implement this ban on inheritances?  Whatever happens, rich people will figure out loopholes to get the money to their kids.

Also, I'd rather be a poor person with 2 healthy parents than a rich one with 2 dead parents.  I don't think orphans necessarily have an advantage over others as they lose out on the wisdom and family love that parents provide.

Yeah, I do actually believe that inheritance tax should increase, and things like trust funds be heavily taxed.

The challenge in implementing such a policy is that people will always try to get round it, and create new structures to funnel wealth from one generation to the next. Not to mention the challenges of getting a policy like this passed...  But you know, it's always nice to dream of my own mini utopia, where hard-work and intelligence is rewarded, and everyone has en equal start in life.

Yes easy solution off the top of my head-  leave it to a charity run by your kids with insane salaries and benefits.
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GuitarStv

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Re: Factoring inheritance
« Reply #58 on: August 17, 2017, 10:17:59 AM »
You know, I'm getting more and more anti inheritance lately,  I see it perpetuating inequality and hindering social mobility.

Not surprising you feel this way.  The sole purpose of inheritance is (and always has been) to give a child an unearned advantage over others.

Are you suggesting the government establishing a 100% estate tax?

Nope.  Just reporting the truth.  Inheritance is a way to give a child an unearned advantage over others.  That's why parents do it.  They don't want a level playing field for their kid.


How would you implement this ban on inheritances?

I didn't suggest a ban.  It's easy to see why one might support it though . . . it would allow success to be based on personal accomplishments rather than family dynasty.


Whatever happens, rich people will figure out loopholes to get the money to their kids.

Could be.


Also, I'd rather be a poor person with 2 healthy parents than a rich one with 2 dead parents.  I don't think orphans necessarily have an advantage over others as they lose out on the wisdom and family love that parents provide.

What a series of odd tangents you've gone off on.

A kid with a two parent family just at the poverty line living in a run down ghetto with a high crime rate probably has far more difficulty than a kid without a mom who has an ivy league day care, private tutors, lots of enriching activities, college fully paid for, and a loving father.  But this is going to be entirely situationally dependent though.
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Spork

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Re: Factoring inheritance
« Reply #59 on: August 17, 2017, 11:18:40 AM »
Also, I'd rather be a poor person with 2 healthy parents than a rich one with 2 dead parents.  I don't think orphans necessarily have an advantage over others as they lose out on the wisdom and family love that parents provide.

What a series of odd tangents you've gone off on.

A kid with a two parent family just at the poverty line living in a run down ghetto with a high crime rate probably has far more difficulty than a kid without a mom who has an ivy league day care, private tutors, lots of enriching activities, college fully paid for, and a loving father.  But this is going to be entirely situationally dependent though.

I had a different interpretation of Moustaches quote.  I've lost both parents in the past couple of years.  My understanding of the quote was "I'd trade the inheritance I received for just a few more good years with Mom and Dad."  But it's also likely my own emotions are coloring my interpretation.
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EricEng

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Re: Factoring inheritance
« Reply #60 on: August 17, 2017, 02:31:06 PM »
I'm very curious on this topic as well.  I understand not relying on it with multiple siblings.

In my fortunate case I'm an only child with parents in their mid 70s who have portfolio of about $3mil atm that they said is all going to me.  They are in poor to moderate health as cancers pop up and go into remission.  Their expenses are covered by two military officer retirement pays which they use to travel and have lots of fun without touching investment portfolio.  I'm really unsure if we should FIRE now.  My wife and I just reached $1mill networth ourselves.  So we could obviously last easily 20 years without that if I'm lucky enough to get another 20 years with my parents.  If we FIRE we could spend a lot more time with them and let them see their grandkids more.

Bracken_Joy

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Re: Factoring inheritance
« Reply #61 on: August 17, 2017, 08:50:28 PM »
I'm very curious on this topic as well.  I understand not relying on it with multiple siblings.

In my fortunate case I'm an only child with parents in their mid 70s who have portfolio of about $3mil atm that they said is all going to me.  They are in poor to moderate health as cancers pop up and go into remission.  Their expenses are covered by two military officer retirement pays which they use to travel and have lots of fun without touching investment portfolio.  I'm really unsure if we should FIRE now.  My wife and I just reached $1mill networth ourselves.  So we could obviously last easily 20 years without that if I'm lucky enough to get another 20 years with my parents.  If we FIRE we could spend a lot more time with them and let them see their grandkids more.

Sounds like it's worth posting a "Can I retire?" case study with the inheritance as a foot note. =)
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EricEng

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Re: Factoring inheritance
« Reply #62 on: August 18, 2017, 10:18:56 AM »
Quote
Sounds like it's worth posting a "Can I retire?" case study with the inheritance as a foot note. =)
Been considering it.  I just saw a lot of opinions were against factoring it in based on multiple siblings and parents possibly spending it.  So I wanted to throw a different personal twist on it to see if people would argue in favor of factoring it in.

Spork

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Re: Factoring inheritance
« Reply #63 on: August 18, 2017, 10:30:11 AM »

My original answer above was "do not factor inheritance".  I'm going to add a wrinkle in there.

I still think you should not factor inheritance on the amount of stash needed for FIRE.

But, thinking about it I think I should add:  I DO think inheritance might be a factor on how you invest your (non-inherited portion) of your stash.  All conventional mustacian wisdom says to invest primarily in Traditional IRAs over Roth IRAs.  However, if you stand to inherit a large amount of money that already resides in a Traditional IRA, I think this might change the equation.  If you inherit a large amount that is already subject to RMDs AND have a large stash of your own in a tIRA, you may find yourself in a higher tax bracket in retirement when your inherited and traditional IRA RMDs collide.

This, of course, depends on the amounts in each IRA... so it may or may not apply.  But it is worth considering as a tax planning situation, even if you don't use it in FIRE planning.
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neonlight

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Re: Factoring inheritance
« Reply #64 on: August 20, 2017, 04:11:09 AM »

My original answer above was "do not factor inheritance".  I'm going to add a wrinkle in there.

I still think you should not factor inheritance on the amount of stash needed for FIRE.

But, thinking about it I think I should add:  I DO think inheritance might be a factor on how you invest your (non-inherited portion) of your stash.  All conventional mustacian wisdom says to invest primarily in Traditional IRAs over Roth IRAs.  However, if you stand to inherit a large amount of money that already resides in a Traditional IRA, I think this might change the equation.  If you inherit a large amount that is already subject to RMDs AND have a large stash of your own in a tIRA, you may find yourself in a higher tax bracket in retirement when your inherited and traditional IRA RMDs collide.

This, of course, depends on the amounts in each IRA... so it may or may not apply.  But it is worth considering as a tax planning situation, even if you don't use it in FIRE planning.

Hi Spork. I am a non US resident, but your point is valid and I should check my country's equivalent.

Thanks :)

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Re: Factoring inheritance
« Reply #65 on: August 20, 2017, 10:53:44 PM »
That is why squabbling will most likely occur. The smaller the pot, the harsher the squabble.

But maybe not.

Oh yeah.  It wasn't a "harsh squabble" but when my grandmother died, she only had like $20K to divide up among her children and grandchildren.  One of my cousins was a stepchild to my uncle (her son), so one of my aunts maintained that she should not get anything, though she'd been in the family since she was a young child and we've always considered her part of the family. She's a single mother of three kids with a HS education, so a couple grand would be more meaningful to her than to most of the rest of us. Another aunt had to call me and everyone else and see if we were OK with giving 10% of our share so she could be included in the distribution.  I mean really?  It allowed her to go get proper dental work done.

In terms of anything I might inherit, my dad would split his estate evenly between my brother and I.  My main hope is that he is at least solvent when he dies, and that he's liquidated all of his rental properties by then.  I'm more concerned about inheriting an albatross of a piece of real estate than I am about getting any money.

My aunt has a fair bit and I'm in her will as well, but she's doing a ton of traveling and living it up, so I hope she's spending it all or giving it to a good cause.

Chairman

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Factoring inheritance
« Reply #66 on: August 24, 2017, 12:03:01 AM »
I've always assumed zero inheritance. Don't even know how much my parents have. Could be anywhere between something and a bunch. If I one day get something, it will be a nice surprise. (But losing my parents will not be a nice surprise.)

Chairman

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Re: Factoring inheritance
« Reply #67 on: August 24, 2017, 12:16:04 AM »
Just plugged them in to a life expectancy calculator. Apparently they have 20 years left at least, probably.

Finances_With_Purpose

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Re: Factoring inheritance
« Reply #68 on: August 24, 2017, 02:05:42 AM »
I don't think it is disrepectful but I do think it is very unwise. There are just too many things that can happen to things outside your control..
Your parents could change their minds.
They could consume the assets for end-of-life care.
They could outlive you.
Their estate could be tied up for years.

I suggest only planning with assets that are yours.

You asked a fair question, op, and I have wondered the same at one point, but I fully agree now with this post.  Moreover, as to your question, people often get very weird about money and inheritances. 

I've now lived to see the best and the worst.  My father's family handles it wonderfully, whereas my mother's will literally steal from one another when someone dies.  And in both families, people can make some odd end-of-life decisions about money.  Inheritances are impossible to predict and pretty pointless to speculate about.  People are so weird about money generally (save on FI forums!) and closed about it that you'll probably never know what you're walking into, especially from what you've said above about hints. 

And all kinds of crazy things can happen.  I have a relative with dementia, for instance, who thinks he gets $1,000/month to spend but actually gets $100/month (after expenses), and after his wife died, he has been spending like crazy - running through everything he has.  Nobody cares much, because the family isn't counting at all on it and it's all his, but it's just an example of what types of things can happen. 

Finally, I'll underscore one point: end-of-life care can be extremely expensive.  Plus all other kinds of things can happen.  And many parents outlive one or more of their kids.  It's just impossible to predict or depend upon; I agree with the poster above - it's unwise. 

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Re: Factoring inheritance
« Reply #69 on: August 24, 2017, 09:46:49 AM »
Oh yeah.  It wasn't a "harsh squabble" but when my grandmother died, she only had like $20K to divide up among her children and grandchildren.  One of my cousins was a stepchild to my uncle (her son), so one of my aunts maintained that she should not get anything, though she'd been in the family since she was a young child and we've always considered her part of the family.

My family recently had a will issue where "grand nieces and nephews" received something specific, but the step-grand nephew wasn't mentioned.  It was a non-issue to the family that she would be included with that, but some lawyer decided she wasn't.  Thankfully, the nieces and nephews of the person (who had no children of her own) all just ponied up some of their share.  Likely my great Aunt didn't even consider step-grand-nephew wouldn't be considered; it was clear to everyone he wasn't intentionally excluded.

(There was a bit of interesting in the will that one set of nieces and nephews got more than the other set. That caused some drama; but grand- on either side both got the same.)

I just assume I won't get an inheritance in all my planning.  My parents have made it sound like they will mostly skip me and my sister and the money will go to our kids. And I hope that any money that comes my way will be long after I'm FIRE anyway.  Actually, I think I am already FI, though it depends on how the market is doing any given day.