Have you ever considered whether you should leave an inheritance for your children or other dependents? It’s one of those things you never really think of when planning your financial future. The question is always phrased as, ‘How much of an inheritance should you leave?’ or, since the answer to that question is usually considered to be ‘As much as possible’, the follow up is ‘How should you leave an inheritance?’, which discusses the advantages of using a trust vs. a simple will, or whether a Roth or traditional IRA is a better account to pass along money. At no point does the obvious preliminary question arise, ‘Should you give your children an inheritance in the first place?’
Well, almost no point; occasionally, a blogger or other financial writer will discuss the very concept of inheritance, and questions whether we should bother. One such case is John, of Married (With Debt), who considers the need to leave an inheritance as one of the ‘Money Myths’ that serve to keep you in debt, in this case causing you to focus on the future, saving up money you will never use, and requiring your children to care for you when you reach retirement. He raises some good points; it’s probably worthwhile to look closer at the very concept of retirement, to see if we can’t come up with better advice than the standard ‘Save as much as you can to pass on to your children’.
So, Who Should Leave an Inheritance?
Let’s start with the basics; there are times when it is appropriate to leave an inheritance. If your child(ren) is disabled or otherwise unable to work, for example, doing everything you are able to provide for them is definitely good. When we talk about not leaving an inheritance, we’re talking about doing so to able-bodied, fit-minded children who, if you have taught them well, would be able to function well in the wider world; that’s a very different situation than providing money for disabled child so he or she doesn’t have to rely on the charity of the state (which may or may not be willing to provide for him or her).
(Don’t take this the wrong way. This is not to say that all disabled people are unable to function in the world, of course; there are many different types of disabilities and many different people with disabilities, and while some are unable to survive independently, others can function as well (if not better) than the typical ‘able-bodied’ person.)
For a fully able-bodied and able-minded child, though, why is there such pressure to leave an inheritance? If you’ve given them a good education and plenty of opportunities throughout their lives, your children should be more than able to function in the world. You shouldn’t need to give them a six or seven figure sum just to help them out in world; they should be just fine on their own. (And in fact, knowledge of a pending, sizable inheritance can actually distort your children’s motivation; as noted in The Millionaire Next Door, such a pending inheritance can cause children to be less willing to work on their own.)
Why Skip the Inheritance?
There are several advantages to foregoing leaving an inheritance, both for you and for your offspring. For you, the major advantage is increased flexibility with how to use your money (and it’s worth remembering that it is YOUR money; there’s nothing in the law that requires you to leave a single cent to any children you may have). While trying to leave most or all of your net worth to your children, you naturally stick with investments that don’t allow you to use all your money, avoiding things like annuities that could provide you with a steady, higher-than-you-could-safely-withdraw-on-your-own income in your golden years. If you look at your nest egg as solely your money to have an enjoyable retirement, you’re able to do what’s best for you (and possibly your spouse, of course), rather than treating it like you’re borrowing from your children and need to spend as little as possible.
Don’t think that your children will suffer as a result; not getting an inheritance can be liberating for them, as well. They won’t feel an obligation to give their own children an inheritance, for starters, thus saving them the worry and sense of responsibility that sometimes accompanies large inheritances. If they know they’re not going to get an inheritance from you, it also prevents them from lapsing into the mindset of ‘My parents will provide for me, either when they’re alive or when they die.’ Knowing they have to earn money on their own means a whole different view on how to deal with their finances.
Lastly, it can save you, your children, and anyone else who might find their way into your will a great deal of worry and the playing emotional games. With no inheritance coming, you don’t need to worry that your children are being kind to you or taking care of you because they want a larger piece of the pie. Your children, in turn, don’t have to worry about their sibling(s) trying to maneuver their way to more cash, or that they need to do the same in order to get a decent chunk of your cash.
How I’m Going to Approach Inheritances
As you might guess from reading all this, I’m leaning toward not leaving an inheritance to my children. With my mother as a government Social Security worker and my father…out of the picture, I’m not expecting much of an inheritance, myself (and as my mother is a fairly lively fifty-something, it will probably be decades before I receive any inheritance, at all). For my children, I think that if I am able to provide them with a good childhood, ample opportunities to grow and learn on their own, and (possibly) some help in obtaining a higher education, that should be more than enough to get them off on the right foot in the world. There’s no need for me to leave them much, if anything, when it comes to an inheritance, particularly if I can use that money to provide for myself and not have to rely on their support and generosity. I’m not planning to, as the expression goes, for ‘My last check to be to the undertaker, and for it to bounce‘, as timing my death will be rather tricky and there’s always the possibility that SOMETHING will require more of my funds, but if I can increase the amount of money I have during retirement (or speed up the point where I can retire) without putting my financial health at risk, as with annuities mentioned above, I’m going to consider it, even if it decreases the amount I have left to pass on to my children.