I recently read an excellent article by an estate planning attorney colleague that addressed the question of planning for inheritances and whether there was a difference between “equal” and “fair” distribution plans. But I thought the article started at the wrong place in the planning process. I think the starting point is to determine if you even want to provide an inheritance for family members. I get asked all the time—”but don’t I have to provide for my family?”
The answer to that is, “Heck, no.” There is no entitlement to an inheritance. Your children (or other family members—but I’ll use children here as that is the most common situation) have no expectation, or at least should have no expectation, that you will have anything left at your death for them. You may choose to, but that’s entirely up to you. You can, in fact, spend your children’s inheritance and in some cases, burn through that money and start relying on your children for financial assistance later in life. Of course, this is not necessarily the most desirable outcome from a financial planning aspect. The short answer is that there is no obligation, nor should there be an expectation of inheritance.
We have all seen the bumper stickers, “We’re spending our children’s inheritance.” Always good for a chuckle, but sometimes it’s truly the case. You have Mom and Dad out there in the big old RV, the bumper sticker on the back, and they are just living large and saying, “We don’t care. Our kids can fend for themselves. We had to.” There are others who will say, “Well, that’s just not right. You have to provide an inheritance for your children.” And, as I already said—you certainly can provide for them but you are under no obligation to do so.
There’s this kind of old-school belief that it’s something that a parent or grandparent must do. Oddly you hear this many times from people who got nothing from their own parents, so I’m not sure where that notion comes from, but it is something that is a reasonably common belief. It can be that they have to start with that idea as they feel a need to pass down certain legacy items for family members … family heirlooms, jewelry, furniture, things like that, and that’s fine. That may be the true nature of inheritance as opposed to significant sums of cash or investments, retirement accounts, things like that.
With that starting point … no right to an inheritance, can a parent make decisions that are in the view of perhaps some of their beneficiaries, unfair or unequal distributions? Of course, the answer to that question is yes. If you don’t have to provide for them, you don’t have to provide equally for them. You can provide in whatever fashion you feel is appropriate. It can be based on need, based on relationship, or based on whether a child remembered your birthday or not. It can be based on the work that they’re doing for you. If you are living with one child and/or they are spending a lot of time and effort helping you, you may want to provide for them differently than others out of gratitude for what they are doing.
In Part Two of this article we will go deeper into the idea of what is really equal or fair with regard to an inheritance.