March Navigator

By Lou Davis and Allen Davis, CFP®

Talking About Inheritance

Inheritance is the third rail in financial planning. Absolutely no one wants to go there. Yet when you think about your financial circumstances ten, twenty, or even thirty years from now, you need to estimate, even roughly, any wealth you might inherit.  

Without it, you’re flying blind whenever you answer important questions about your future.  For instance:

• When can I afford to retire?
• If I/we buy a more expensive house now, will the mortgage still be affordable, even without a regular paycheck?
• Will we be able to send the kids to private colleges?
• How will an inheritance impact my estate planning?

These are the kinds of issues that often prompt people, when they reach middle-age, to begin working with a financial planner. One or both of their parents may still be living. Whenever that changes, it will inevitably change their children’s retirement assets and estate plan. That’s why it’s so important, whether you’re single or a couple, to include inheritance as a component of your financial planning.

Breaking a Taboo

But many, if not most, people are loathe to raise the topic with their parents. Some families never talk about money. It would seem gauche to violate this taboo. In other families, such a conversation would open an emotional can of worms. There may be equity issues between siblings. (“Mom always liked you best.”) The picture may be even more complicated if there’s a disabled sibling, stepparent, or stepchildren in the picture.

You may have many reasons to avoid the topic of inheritance. You may see self-sufficiency as a badge of honor. Rather than “depending” on the estate that your parents sacrificed and worked hard to build, you are determined to stand on your own two feet.

No matter what your rationale, you’re doing yourself―and perhaps others―a disservice if talking about inheritance remains off limits.

Why You Need to Have This Conversation

To develop a financial plan, you need to consider not only your income and expenses, but also your current and future assets: employment income, savings, investments, insurance, annuities, as well as any inheritance you may eventually receive. Only then will you be able to plan for your financial life in retirement, old age, and beyond, through your estate.

If, instead, you wait until after the estate is settled, you may overestimate or underestimate your inheritance. In the interim, you would have made financial decisions with long-term consequences―decisions you might have made differently, had you known what to expect. There might be lost opportunities, like a trip you could have taken before your knees gave out or the gift you could have made towards the down payment on your child’s first house. Or putting in place a trust that could help you mitigate estate expenses that you didn’t know you would have.

Having an inheritance conversation isn’t just a matter of self-interest. It can also help your parent(s). It provides an opening for them to talk about their own wishes: what they value; the intangible as well as the tangible things they want to pass on; the feelings, relationships, and rationale that guide their estate plan. These topics provide a context in which they may become more comfortable sharing information about the rough value of the estate and their intentions.

How a Financial Planner Can Help

An experienced financial planner understands that you, like many other clients, might prefer to remain in the dark than to talk to your parent about an inheritance. Nevertheless, to be thorough, planners would benefit greatly by including even a rough estimate of potential inheritance in your financial plan. They can also suggest questions you might ask your parents to get the conversation going.

In most cases, children want what’s going to be best for their parents, including their financial well-being for however long they live. Parents, in turn, hope to leave as much as possible to their heirs. Parents also hope their children are making sound decisions about their own futures and would be glad to help them do it.

Estate Planning services are provided working in conjunction with your Estate Planning Attorney, Tax Attorney and/or CPA.  Consult them for specific advice on legal and tax matters.

Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Supervisory Office: 330 Whitney Avenue, Suite 600, Holyoke, MA 01040, Tel: 413-539-2000. The Davis Financial Group, LLC is not a subsidiary or affiliate of MML Investors Services, LLC. CRN202602-3966790