How to account for potential future inheritance for retirement?

littlestar624May 2, 2007

When you go to financial sites to look at your retirement fund projections over time, sometimes they ask you about expected inheritances. What if you know you will be getting a decent sum of money in the future, but you don't know when (obviously if the person(s) are still alive), or how much...? How can you plan for this? (Ugh, it seems so callous to even discuss! But these sites do it got me curious, I guess, how others do this.)

We run a tight budget without a lot of extras, but we also max out the Roth and 401Ks. There is just so much unknown with the inheritance issue, but I would love to be able to free up some of that money going to the retirement funds so we can enjoy it now if we could factor that into the projections somehow.

Is there any reasonable way to factor this in, or should we forge ahead with our current plan and not account for this at all?

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I don't see how you can plan on this money and, in my opinion you shouldn't count on it. You can think you are going to inherit something, but there is really no guarantee unless it's sitting there for you in a trust that can't be changed. People can change their minds and change their wills as long as they are sane and able to handle their affairs. Also the funds could be used up before death or, if it's property, it could be lost before death. So many things could happen. I think you have to treat inheritances as "gravy" and not something to be counted on. Anyway, those are my feelings and I'm sure others will have an opinion.

    Bookmark   May 2, 2007 at 9:25AM
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I certainly would not count on the money. Lots of things can happen that you never receive the money. Two I see most often are the person goes into a nursing home or the person meets someone, remarries, and leaves their new spouse everything. Both happen more than you can imagine. Inheritance is not a sure thing or something to base your financial planning on.

    Bookmark   May 2, 2007 at 9:38AM
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Add me to the "Don't count on it" people....

There are NO guarantees there!

    Bookmark   May 2, 2007 at 11:57AM
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I am in a position to know exactly how much I will inherit. As executor of my fathers estate he give me figures at the end of each month as to who get what. It's based on how much he has already given each of us, his children, and what is in all of his revocable trust accounts.

When my mother passed away he disclaimed her half of there estate so that money is in a irrevocable trust, bypass trust, based on appraisals at the time of her death. I am a beneficiary of this trust. His CPA tells us each year how much money to keep in those accounts to avoid paying higher taxes on that trust.

If my father ever had to go into a nursing home he has more than enough monthly income to cover it. I will follow his wishes and keep him in his home and hire nursing, housekeeping, any help he needs no matter what the cost.

Even with all that said I do not take any of it into account when planning "our" retirement. I am the one who will inherit not "us". We have to look at it as a maybe! We have to look after DH. What happens if I get hit by a mack truck? My daughter will inherit not DH. We have to protect his best intrust. So we have a 401and have planned and saved for our retirement even knowing in all likelihood I will have huge a inheritance.

On the advice of his CPA my father has been gifting money to us so we will be paying as little as possible in estate taxes. He calls it my monthly allowance, it makes him happy, and I am saving it for our retirement.

    Bookmark   May 2, 2007 at 12:03PM
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I figured this might be the answer...and it does make the best sense. I think I am just hopeful because some sites with projections even as low as 8% tell us we have enough saved right now...but we're both very conservative in our approach to savings and we'd be afraid to stop contributing altogether, but maybe we can cut back a little bit...and that isn't even considering the potential inheritance.

Thanks, everyone!

    Bookmark   May 2, 2007 at 2:23PM
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"Not count on it" camp here as well.

Nobody left on my side and no money there either. DH will be executor of his parents sizeable estate. Set up as partst descrbes, except we don't get any monthly gifts in the meantime, LOL.

I keep telling DH his mother will outlive us and change the whole deal any way. He agrees!

    Bookmark   May 2, 2007 at 11:38PM
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I think my dad is gifting us the money because he goes into shock every year at tax time. So his idea is give us the money so he doesn't have to pay as much in taxes. Plus he really seems to get a kick out of it. It makes him smile and that is worth more than any amount of money he could ever give me.

We, all of his children, have tried to tell him we have our own money and are all doing just fine. I really wish they, my parents, would have spent and enjoyed there money more but coming from the depression era all they ever did was save and invest in income property.

They had a wonderful, happy, loving marriage, 64 years, my mother never went without. Money was never an issue. It just seems to be burden for my dad now.

My father, like most men, thought he would die first and wanted to leave my mother with enough that she "wouldn't be a burden on us children", his words not mine, and I think he is still surprised that it didn't happen that way.

So the lesson I have learned is it doesn't hurt to save for retirement but you should enjoy it along the way.

    Bookmark   May 3, 2007 at 1:55AM
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Hi little star on June 24,

To quote celtic moon: " ... it doesn't hurt to save for retirement but you should enjoy it along the way."

When one considers the messages that come from her, I'd say that celtic moon has her head screwed on straight ... or so it seems to me.

I wouldn't count on an inheritance, either, for, as someone said, maybe the senior(s) will need major (uninsured) medical care, or retirement/nursing home care that may eat up all of their assets.

Or maybe the old man'll get interested in some young floozy, and end up willing her everything.

Can anyone say, "Anna Nicole Smith"?

Old women seem somewhat less enticed by such temptations: maybe it's just that old women are smarter?

Dad used to say, "Never count your chickens before they're hatched".

Your situation is very different from the Canadian tax-deferred retirement plans, I'm sure, but, though most financial advisors here say that "everyone" should have RRSPs (Canadian equivalent), some of us say that there may be better ways, for people who have quite a few years till retirement (i.e. long enough to give the assets time to grow).

I have no idea whether a similar plan might be beneficial in your situation, but it might be, as everyone says that your tax loads are lower than ours, and my plan works best for local people in low tax bracket.

Actually, the rate of the tax load is less important than the proportion of income going to tax and the amount of difference in percentage between low tax and high tax rates. Which may be lower than earlier, for you folks, considering Mr. Bush's recent tax cuts that benefitted mainly the well-to-do.

It might be worth running past your financial advisor, or possibly accountant, though quite a few accountants are a bit too risk-averse to be encouraging.

Investing some time to learn how money works pays off well for most people.

I recommend it.

Good wishes to you and yours.

ole joyful

    Bookmark   May 3, 2007 at 7:50PM
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Thanks Joyful, but credit goes to Partst for those words. And wise word they are.

Partst, I think it is great that your father gives money now, both so he can enjoy the giving and his family can benefit from the gifts. DH's parents, while also hating taxes, live in that Depression era "don't touch the principal" mindset. They are both thriving and independent in their 80's (and the grandparents pushed 100), so I can understand their holding on to everything for now. They may well need those dollars when they are 100!

    Bookmark   May 7, 2007 at 11:43AM
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IÂm another one who says not to count on an inheritance before you have it in your hot little hands.
I saw a nasty fight in my exÂs family over an inheritance, which was supposed to have been a done deal, and did not go as most of the family expected.

That said I both do and donÂt plan on an anticipated inheritance. (My mother has a fair degree of dementia.) That is I donÂt depend on it for my future but I do have plans for it at such time as it materializes.

If the person you anticipate receiving the inheritance from is able and amenable you might explore transferring some assets prior to their passing. This of course is a delicate matter and needs to be dealt with considerable tact.
In my present position I do not have a lot of ready cash but would like to start transferring funds to my daughter at such time as I do have the cash. I would start with relatively small amounts and see how she handles it before giving more.


    Bookmark   May 7, 2007 at 3:38PM
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Transferring principle assets is never a good idea as far as estate planning. You loose the stepped up value that happens with inheritance. Not to mention other legal issues that could come up. My ex mother in law gave my grandson 40 acres here in Ca. and insisted on doing it before she passed away, transferred it to his name, so now he has her base. If she would have willed it to him he would have gotten a stepped up value and would pay much less in capitol gains if he decides to sell it.

And you must keep in the guidelines of the gift tax. Gift tax can come back to bite you if you give to much in any given year or over the life limits.

My father is trying to reduce the amount of tax he is paying on interest income. He can give $12,000.00 a year to any one he wishes but go over that amount to any one person and the IRS want's to know about it. I am not totally clear on it but that's what the CPA told us. My father wanted to sell a small commercial property and give the money to us kids and was told it would effect his estate taxes if he gave each of us that kind of money all at once.

My understanding is he can give me up to a million in his lifetime but if he dose it will be added back in the calculation for his total estate and would be taxed accordingly after his death. His plan is for us to pay as little as legally possible in estate taxes on the money he leaves us. The first $12,000.00 in any given year for any one person is exempt.

As far as nasty fights over inheritance my father is not a fool and contrary to popular belief knows his children well. This is why he give me a detailed accounting each month. He has told me on several occasions he dose this to protect me later. Meaning he doesn't want me to have any hassles so everything is written in stone, in his handwriting, and his attorney is kept in the loop.

I realize that in most families these thing are usually not talked about so openly or in my case so often. In some ways I am grateful I am so well informed and protected but sometimes it hits me like a tone of bricks. I don't think my father realizes the emotional toll it takes on me always talking about what will happen when he dies. It's been 3 years this month since my mother passed away and I really don't want to go there again. I hope he lives for another 100 years and takes all the money with him. That would be the best gift he could give me.

    Bookmark   May 8, 2007 at 1:53AM
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Different jurisdictions, different rules, one needs to talk to a local financial planner about options.

In my case I had a chat with a financial planner re transferring CDN$10,000 cash a year to my daughter once I sell my house. I was told that where I live (British Columbia, Canada) that there were no consequences. If I transfer income-producing property to her then the income is attributed back to me.

When my father transferred cash to me many years ago he had to be careful about not triggering gift taxes, but I am told that they are not an issue here any more.

In my family the problem is that my mother is rarely able to communicate her wishes with us and there are a number of issues which will be unresolved until after her death, not the big financial items but rather things with sentimental value. She made provision for these matters in her will but time has changed how that will play out.

    Bookmark   May 8, 2007 at 1:58PM
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The fastest growing group in US population is the people over 80+. Money has to last a lot longer than it did in, say, 1957 - a man's life expectancy then was 66.4 years.

Needless to say it's quite a bit higher now!

My husband is an only child and his mother has about $1M in assets (all liquid) right now. Truthfully, she's 79 and probably in better health than we are. She has at least IMHO a 50% chance of outliving us.

We made it a point when she moved in with us last year, to get her financial and legal affairs straightened out. We specifically selected a financial advisor she could trust in case both DH & I aren't around at some point, for her to rely upon.

She is willing to start gifting to us, so that's a nice little retirement bonus - my husband is eligible for early retirement in Oct 2008. But realistically, we organized our own legal/financial affairs on the assumption that there would be little, if any, of her estate added to ours.

If she gifts to us, then I can retire early as well. If she doesn't, then I keep working till I'm 62, which is only 6 more yrs anyway, no biggie deal.

joyfulguy's first post made me laugh about the old man/young floozy, but this actually did happen to two of my friends. In both cases, the daughters ended up inheriting - zilch. The young wives walked off with all the assets.

    Bookmark   May 9, 2007 at 3:59PM
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Some people enjoy doing their estate stuff, it gives them a measure of control over something that is not controllable. I have a relative, now well into her 90s. Since I was 7 years old (I am now in my early 40s) she has spoken to me about which pieces of jewelry my sisters and I will inherit. At this point we all have lots of jewelry of our own but she still brings it up occassionally, also telling us the history of each piece. It gives her some feeling of control. She is a therapist by training and occupation and readily admits this

    Bookmark   May 12, 2007 at 1:04AM
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My husband is an only child whose father died from cancer at age 64. To her great surprise, his mother lived another 25 years. She always kept us abreast of her financial affairs, and had me manage them the last few years. While I appreciated knowing that we would have a generous inheritance at some point, I would have been happier if she would have spent more money along the way and enjoyed herself more. She didn't do without but never treated herself either.

I must add that dealing with the financial issues after her death was much easier because I knew where everything was and had a good handle on what should be done. The three of us did consult an estate attorney six months before her death and put her assets in a trust, which had no effect on estate taxes but did allow us to avoid probate and save some money and hassle that way. Since her final illness was so harrowing, I'm very glad that we didn't have the added stress of searching out and handling financial affairs at that point.

And yes, the time to establish her living trust was much earlier than it was done, but she wasn't interested then. Several years before her death, she talked to us about putting her money in a trust that would pass to DH tax free upon her death, but lost interest in that when she found out that she would have to relinquish some control over the funds in her lifetime.

    Bookmark   May 13, 2007 at 3:47PM
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As for the original question, I suggest thinking of your retirement funds in 2 categories - things you need and things you want. Realistically, you know an inheritance is most likely coming to you, but it's not guaranteed. If you can manage to fund your basic needs yourself, you'll be ahead of many people. And if you inherit money, it can pay for travel or luxuries.

My aunt & uncle divided up their retirement savings this way, with the more conservative investor handling the "have to have" funds and the more risk-tolerant one handling the "play" money. It worked out well for them.

    Bookmark   May 14, 2007 at 5:51PM
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I agree w/ the earlier poster who said don't count on it but don't scrimp yourself to death either. After all, there's no guarantee that you'll live to have a long retirement. How many people does one hear about who saved all their lives, never took a sick day, then retired w/ lots of big plans to finally have fun and stroked out 6 weeks later.

IMO, fun is something that should occur along the way.

Financial planners would tell me that i "shouldn't" spend a couple thousand on a big vacation every year. But, I want to know that i've done more in life than hoard money. That 'someday' may never come, but today is definitely here.

    Bookmark   May 15, 2007 at 12:32PM
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