Sunday, March 11, 2007

I Palindrome I

Miserly Bastard just posed a rather bizarre question: How do you plan for inheritances?

The thought's certainly occurred to me before. And the answer is simple: I don't. As much as I harp about accurate projections and realistic planning, making plans to spend your dead parents' money is just morbid. That could be the end of the discussion right there, but I'll keep going.

Trying to forecast those sorts of numbers is borderline impossible. First of all, it's none of my business how much money my parents have put away. I don't particularly want to know either. Second, I have no idea when both of them will pass away. next year? 30 years? Third, I would hope they spend it all on themselves while they still can -- it's their money after all. And finally, terminal hospital bills, hospice bills, and long term care bills can remove a tremendous amount from your bottom line. Trying to forecast all that is like trying to read tea leaves in a tornado. ®

Practicality issues aside, it's just a creepy thing to do. I think the farthest that I could carry the thought is to a very vague conclusion -- "well I'll just put it away for my future kid's college fund, or early retirement or something." I'd like to hear from you if you have a different perspective.

/props to those who get the article title reference.

posted by Matthew at 11:39 PM

6 Comments:

  • I don't even think about any possible inheritance as there's a good chance I'll be retired (and hopefully not needing any extra cash) by the time they're both dead (fingers crossed). Also, my wife's parents were both deceased before we got married and didn't have any estate to pass on, so it makes it less of an issue. Actually I'm just hoping that they have enough left to see them through the remainder of their retirement.

    Regards
    http://enoughwealth.com

    By Blogger enoughwealth@yahoo.com, at 4:25 AM  

  • If you decide that you are doing well enough on your own, thank you very much, one possibility would be to use the inheritance to do good works in your parent's name. To maximize their happiness, one could plan their legacy with them.

    By Anonymous Anonymous, at 5:26 AM  

  • I totally disagree. I have had conversations with my parents about their estate, principally because I want to make sure that they have done correct estate planning to minimize taxes. Unless you're talking about a large fortune, it is completely possible to "plan" your way out of the estate tax through a combination of making sure that your assets take full advantage of the unified credit shelter and/or you take advantage of the $12k per person per year gift tax exemption. Other techniques exist, such as purchasing second-to-die life insurance policies.

    Maybe it is morbid, but death is a fact of life, and there's nothing wrong (in my opinion) to thinking about how to keep your family's money out of the hands of the federal government. As it turns out, my father is a planner like me, and he has largely taken advantage of the loopholes that exist, although I reminded him that since the birth of our daughter, he should consider taking advantage of the generation skipping transfer tax exemption.

    Of course, at the same time, I think that my parents' money is theirs, and I hope they spend as much of it as they want for their own enjoyment, hopefully spread out over a long life. I simply recognize that, in my family, people dont live much beyond their mid-80s, which means that my parents--while healthy right now--should be thinking about estate planning with some seriousness.

    By Blogger Miserly Bastard, at 4:45 PM  

  • I think we're discussing two different items here. You're speaking in regards to planning for a tax-efficient distribution of an estate, while I'm speaking about how to spend the proceeds of that estate. The two are vastly different issues.

    Estate-planning is indeed an important issue. It's one of the few areas in the realm of personal finance where a professional opinion is worth it's asking price. The "DIY approach" often leads to years of probate, family disputes, and--as you discuss--inefficient tax treatment.

    That being said, it's still your parents' responsibility, and not your own. While it may be advisable to encourage a parent who isn't a "planner" to seek an estate planning attorney, I stand by my original (and separate) assertion that earmarking those estate funds years before your parents' death is inappropriate.

    When it comes to death, there's no need to bury your head in the sand like an ostrich, but circling like a vulture is the graver of the two sins.

    By Blogger Matthew, at 5:59 PM  

  • It's not pleasant to think about parents or other relative dying. Nor is it wise to become a spendthrift if you know you have a coming to you.

    I think it is good to give some thought to it, because you'll be in a more weak, more vulnerable state when the deaths happen. Regardless of how well or how poorly they planned their estate, there will be lots of people with great ideas approaching you as to how they -- uhh, you! -- can invest the money. Thinking about it and putting a plan in place makes saying "no" to the vultures easier.

    By Anonymous mbhunter, at 1:15 AM  

  • I also don't give much thought to any potential inheritances. However, I also agree that if you don't think your parents are capable of effective estate planning, then you should step in and try to help...at least by pointing them to a professional.

    Further, if it is a very large estate and the inheritance is all but certain, I think giving it some thought is healthy as we have all heard stories how unexpected large sums of money change people (often not for the better). Ideally, you would have some open discussions about it with your parents BEFORE they passed away to get their thoughts / advice to help guide you.

    By Anonymous pfodyssey, at 12:27 AM  

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