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Will You Leave an Inheritance for Your Children?

by Miranda Marquit

A recent article on CNN Money says that American retirees expect to leave an average of $177,000 in inheritance for their heirs. Other than wondering how much millionaires and billionaires are skewing this average (seriously, I don’t know anyone who’s going to wind up with $177,000 from their parents or grandparents), I’m wondering whether or not it’s really such a great idea to plan to leave an inheritance for your posterity.

Why Is There Money for an Inheritance?

leave inheritance for kids

Will you leave money to your children?

Part of the reason that many Americans end up leaving money behind for their posterity has to do with the fact that we are conditioned to save up as much as possible to fund our own retirements. So, if you save up what you can so that you are sure to outlive your money, it makes sense that there is likely to be some left over for your children and grandchildren.

In fact, you might be relying on money that you think will be left over when your own parents die. According to CNN Money, two-thirds of those in the United States claim that an inheritance will partly fund their own retirements. It seems only natural that you will pass on money to your own heirs over time as well.

For some, though, there is a conscious effort to build up an inheritance for those who come after. Instead of trying to make sure that they have what they need (and then some), and then letting the chips fall where they may when it comes to leaving money for their heirs, there are those that hoard as much as they can so that their beneficiaries end up with as much money as possible.

Re-Thinking the Inheritance

In some case, though, it makes sense to re-think the idea of the inheritance. First of all, you might not want to try to amass a pile of money that you will never enjoy. While my husband and I are good about contributing to our retirement efforts, we don’t get too crazy with it. After all, we want to enjoy some of our money now, in addition to saving for the future. What good is a huge retirement account if you’re too old to enjoy it?

Another reason to re-think the huge inheritance for your heirs is the reality of taxes. A big inheritance can mean that your children and grandchildren lose a lot of value to estate taxes and inheritance taxes — state as well as federal in some cases. Instead of trying to build up that huge stash, some choose to give money now. You can use your gift tax exclusion to give gifts tax-free, reducing the size of your estate and creating a situation in which you can watch your heirs enjoy their inheritance, rather than being insensible of it.

You can also re-arrange your estate plan with the help of vehicles like trusts that can help you smoothly pass your assets while reducing tax liability. This is where a basic estate plan and a will are essential.

A “traditional” inheritance isn’t always the best choice. Think about your situation, your goals, and what you really want to teach your children and grandchildren. Then, make your decisions based on what is likely to be most beneficial in the long run.


Published or updated February 19, 2014.
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{ 3 comments… read them below or add one }

1 Doug @ The-Military-Guide

Good post, Miranda. I wonder how much of this is a fear that the next generation won’t have the pensions or the 401(k) balances for their own retirements, either.

Imagine if, instead of waiting decades of adulthood to inherit, your parents were able to help you maximize your 401(k) and IRA contributions while you were in your 20s. Of course many parents can’t tell yet whether they have money to spare for that, and many 20-somethings would be tempted to raid the accounts for a BMW…

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2 Ryan Guina

Great comment, Doug. Getting young folks off to a great start is much more important than leaving a financial legacy. It’s the same as the adage of giving a man a fish, or teaching him to fish. Instilling good financial habits lasts a lifetime, and helps ensure your children will be OK in the long run.

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3 Bryce @ Save and Conquer

I think you are missing a “not” in your second paragraph, “So, if you save up what you can so that you are sure to outlive your money…” should read, “sure to not outlive your money.” Anyway, we plan to give our son annual gifts once he gets through college, gets a career job, settles down, and shows he can handle money. We have loaded up his 529 so he won’t have any debt if he attends a state university. As far as an inheritance, he will get whatever is left over. Barring an accident, I am positive my wife will outlive me by many years. When we retire in 9 years she will only be 49 years old. We plan to have more than enough money for the both of us, but it needs to realistically last for probably 45 years or more. All analyses show there will likely be more money when she is 100 than there is now, so I am pretty sure our son will get an inheritance.

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