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Financial and Psycological implications of inheriting or giving millions to heir

Home Estate Planning Financial and Psycological implications of inheriting or giving millions to heir

  • Vagabond MD Vagabond MD 
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    Status: Physician
    Posts: 3338
    Joined: 01/21/2016

    I have received inheritances totaling about $300k from deceased grandparents. They have had a modest but measurable impact on our net worth. When my parents pass, I would expect to receive in the neighborhood of $500k to $1.5M, depending on when they pass and how much they spend along the way (and how long my father’s second/current wife lives after he passes). Actuarially speaking, I am likely to be retired before I receive inheritances from my parents.

    As for my children, I am hopeful to leave them an inheritance in present dollars of $500k to $1M. Interestingly, my children will likely receive a greater inheritance from my younger sister (their Aunt). She is a 60:40 beneficiary of my father’s estate, is single, lives modestly and will likely to continue to accumulate assets throughout her life. I am her primary beneficiary and my children are secondary. She is approaching 50, and I suppose that if she marries, this could change but not likely.

    I have written about this before– my children have money set aside beyond college expenses in a UTMA, which after college, should be $100-120k per child, to be used as “starting out in life” money– for grad school, to buy a house, to start a business, etc. It’s not enough to make them wealthy and unmotivated but enough to smooth things out and allow them to take some chances before settling in. A physician mentor gave me this idea many years ago, and while it is controversial here, many who would oppose the idea would have been happy to have such a fund (as would I).

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #65849 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1961
    Joined: 09/16/2016

    I find that in most successions where the decedent is very wealthy, the legatees are usually also wealthy, or at least well-to-do.  So inheriting $1M or $10M or $100M isn’t really life changing.

    Generally speaking, whenever there is a situation where a particular child can’t handle the money, the parents usually have some sort of spendthrift testamentary trust.  And then of course the same with minor children or grandchildren who are too young.

    Also keep in mind that unless you have one legatee, your estate is getting divvied up.  If you leave that $2M to your four kids, that’s only $500k each to a kid.  Definitely a lot of money, but hardly life changing for a child who is probably in his or her 50s or 60s at this point and has been living a fiscally responsible lifestyle like his parents.  It certainly might help them retire a couple of years sooner or spend more on their own children.

    Most of the clients I see divide bequests equally among their children, usually equally by branch.  It’s pretty rare to have a client have an unequal division among children, and in those cases it’s typically because they’re trying to equalize for some large gift they made one child during life, they have one special needs child or grandchild, or they’re writing a kid off altogether.

    It’s pretty rare for me to see large portions of an estate bequeathed to charity unless there are no children.  Generally, when there are kids, it feels like people are more generous during their lives than at death.  They might give millions away during life, but what remains in their estate at death goes to their children.  In my years of practice, I’ve only had one very wealthy client with children write a will leaving a large portion of his money to charity.

    When there are no kids, wills tend to get a little more interesting, with clients tending to be much more willing to pick favorites among siblings, nieces, nephews and friends, and much more willing to make large charitable bequests.

    Click to expand…

    are you able to comment on tax rates for trusts and whether it would be better to establish 529 for grandchildren than leave money in trusts for parents who won’t get them until 30, 35, 40?   i’m also aware that the parents might otherwise need the money and grandchildren might qualify for financial aid, depending on various scenarios.

    like white beard, our current will has different amounts being received at different ages.  we debated on that for a while too, since the younger child is five years younger and may feel some resentment that he doesn’t get a ‘windfall’ at the same time as his older sibling.  hopefully we live long enough that this isn’t an issue, but there is a definite chance one or both will be gone.  my wife worries if she goes, that i will get married to someone else and everything will be spent by some gold digger, regardless of what the wills say.

    i’m prone to overthinking things, so my apologies in advance.

    Click to expand…

    That really depends on your goal.  If you want to provide money that’s earmarked for the grandchildren’s college education, a 529 may be better than leaving the money to a trust FBO their parents, particularly if the parents need the money.

    Keep in mind that you’re probably not going to die tomorrow, and your children may all be over 40 at the time of your death, in which case they may not receive the money in staggered sums.

    The taxation of any given trust depends on the details, some pass their income onto the beneficiaries and some pay tax at the trust level.  This is definitely a good topic to discuss with your CPA or estate planning attorney.  The tax rates for trusts are indeed unfavorable, brackets start at 15% but quickly rise to the top bracket of ~39% at about $12,000 of income. However, trusts aren’t typically out there earning a salary, but tend to have only passive income from things like dividends, interest, rents.  It is often the case that a trust large enough to be paying tax at that top 39% rate is for the benefit of beneficiaries who are already in those upper tax brackets anyway, so it can be a bit of a wash, but obviously you don’t want a trust paying 39% while the beneficiaries are in a low bracket.

    As for your wife’s worries about gold diggers, best thing for her to do, besides writing a good will, is to live longer than you do.   😆

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    #65907 Reply
    Liked by q-school
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1961
    Joined: 09/16/2016

    One of my family members is doing something I think is pretty smart.

    He’s wealthy but not insanely so, ~$5M net worth around 60 years old. Couldn’t burn through that if he tried.

    He is gifting to his kids right now (mid late 20s, both exceedingly responsible and career driven) but stipulating that basically of the money has to be put in retirement accounts (and he checks to verify).

    So they are getting quite large amounts of money each year but aren’t “seeing it” in a way that they can blow. Sure it frees up some other money but I think it nicely avoids the trust fund kid issues (not that these kids would have those). The way he put it to me is that he is “securing their retirement.”

    My FIL supplemented my wife’s income early in career so that she was able to max out her 401k all through residency. So again he wasn’t handing her gobs of money to blow but saying “if you max out your retirement account I’ll make your monthly cash flow look like you didnt.” Finished residency w/ like $90k in retirement!

    My plan to is to pay all reasonable educational expenses and do something like this if I can.

    Click to expand…

    forgive my ignorance, is it better to max out retirement or avoid student loans, if you have to pick between the two?

     

    Click to expand…

    6 of one, half a dozen of the other…

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    #65911 Reply
    Liked by q-school
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2492
    Joined: 05/07/2017

    I find that in most successions where the decedent is very wealthy, the legatees are usually also wealthy, or at least well-to-do.  So inheriting $1M or $10M or $100M isn’t really life changing.

    Generally speaking, whenever there is a situation where a particular child can’t handle the money, the parents usually have some sort of spendthrift testamentary trust.  And then of course the same with minor children or grandchildren who are too young.

    Also keep in mind that unless you have one legatee, your estate is getting divvied up.  If you leave that $2M to your four kids, that’s only $500k each to a kid.  Definitely a lot of money, but hardly life changing for a child who is probably in his or her 50s or 60s at this point and has been living a fiscally responsible lifestyle like his parents.  It certainly might help them retire a couple of years sooner or spend more on their own children.

    Most of the clients I see divide bequests equally among their children, usually equally by branch.  It’s pretty rare to have a client have an unequal division among children, and in those cases it’s typically because they’re trying to equalize for some large gift they made one child during life, they have one special needs child or grandchild, or they’re writing a kid off altogether.

    It’s pretty rare for me to see large portions of an estate bequeathed to charity unless there are no children.  Generally, when there are kids, it feels like people are more generous during their lives than at death.  They might give millions away during life, but what remains in their estate at death goes to their children.  In my years of practice, I’ve only had one very wealthy client with children write a will leaving a large portion of his money to charity.

    When there are no kids, wills tend to get a little more interesting, with clients tending to be much more willing to pick favorites among siblings, nieces, nephews and friends, and much more willing to make large charitable bequests.

    Click to expand…

    are you able to comment on tax rates for trusts and whether it would be better to establish 529 for grandchildren than leave money in trusts for parents who won’t get them until 30, 35, 40?   i’m also aware that the parents might otherwise need the money and grandchildren might qualify for financial aid, depending on various scenarios.

    like white beard, our current will has different amounts being received at different ages.  we debated on that for a while too, since the younger child is five years younger and may feel some resentment that he doesn’t get a ‘windfall’ at the same time as his older sibling.  hopefully we live long enough that this isn’t an issue, but there is a definite chance one or both will be gone.  my wife worries if she goes, that i will get married to someone else and everything will be spent by some gold digger, regardless of what the wills say.

    i’m prone to overthinking things, so my apologies in advance.

    Click to expand…

    That really depends on your goal.  If you want to provide money that’s earmarked for the grandchildren’s college education, a 529 may be better than leaving the money to a trust FBO their parents, particularly if the parents need the money.

    Keep in mind that you’re probably not going to die tomorrow, and your children may all be over 40 at the time of your death, in which case they may not receive the money in staggered sums.

    The taxation of any given trust depends on the details, some pass their income onto the beneficiaries and some pay tax at the trust level.  This is definitely a good topic to discuss with your CPA or estate planning attorney.  The tax rates for trusts are indeed unfavorable, brackets start at 15% but quickly rise to the top bracket of ~39% at about $12,000 of income. However, trusts aren’t typically out there earning a salary, but tend to have only passive income from things like dividends, interest, rents.  It is often the case that a trust large enough to be paying tax at that top 39% rate is for the benefit of beneficiaries who are already in those upper tax brackets anyway, so it can be a bit of a wash, but obviously you don’t want a trust paying 39% while the beneficiaries are in a low bracket.

    As for your wife’s worries about gold diggers, best thing for her to do, besides writing a good will, is to live longer than you do.   ????

    Click to expand…

    well what about my worry about gold diggers?  j/k.  i’m not lucky not enough to die first.

    #65916 Reply
    Liked by Craigy
    MPMD MPMD 
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    Status: Physician
    Posts: 2266
    Joined: 05/01/2017

     

    I have written about this before– my children have money set aside beyond college expenses in a UTMA, which after college, should be $100-120k per child, to be used as “starting out in life” money– for grad school, to buy a house, to start a business, etc. It’s not enough to make them wealthy and unmotivated but enough to smooth things out and allow them to take some chances before settling in. A physician mentor gave me this idea many years ago, and while it is controversial here, many who would oppose the idea would have been happy to have such a fund (as would I).

    Click to expand…

    I absolutely love that idea. Would fund a gap year, an amazing trip or two, or like you said a stab at a far-fetched dream. But not so much money as to strip them of their motivation.

    If I had had that I basically would have just come out of med school w/ that much less debt, not zero but not $260k.

    Kicking around in all our minds is clearly that many of us on this forum got to where we are through a combo of luck (USA, educational opportunities) and hard work/sacrifice (my car at the end of med school was frankly dangerous to drive). I think we all worry about providing so much to a kid that they miss out on that grit.

    Holy hell is that tough to balance. My wife is interesting in this respect did private HS, private college, private med school all paid for, given new cars etc and came out on the other end with an absolutely insane work ethic. She works like her life depends on it. You can’t always control this stuff I guess.

    #65946 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2492
    Joined: 05/07/2017

     

    I have written about this before– my children have money set aside beyond college expenses in a UTMA, which after college, should be $100-120k per child, to be used as “starting out in life” money– for grad school, to buy a house, to start a business, etc. It’s not enough to make them wealthy and unmotivated but enough to smooth things out and allow them to take some chances before settling in. A physician mentor gave me this idea many years ago, and while it is controversial here, many who would oppose the idea would have been happy to have such a fund (as would I).

    Click to expand…

    I absolutely love that idea. Would fund a gap year, an amazing trip or two, or like you said a stab at a far-fetched dream. But not so much money as to strip them of their motivation.

    If I had had that I basically would have just come out of med school w/ that much less debt, not zero but not $260k.

    Kicking around in all our minds is clearly that many of us on this forum got to where we are through a combo of luck (USA, educational opportunities) and hard work/sacrifice (my car at the end of med school was frankly dangerous to drive). I think we all worry about providing so much to a kid that they miss out on that grit.

    Holy hell is that tough to balance. My wife is interesting in this respect did private HS, private college, private med school all paid for, given new cars etc and came out on the other end with an absolutely insane work ethic. She works like her life depends on it. You can’t always control this stuff I guess.

    Click to expand…

    exactly.  those who came from modest background are hoping for kids like your wife.  glad to know its possible.  given that it is possible, however, than maybe we are overthinking things.   i think it is far harder when kids who are motivated chose a career with an unclear training/educational or one that may not be financially rewarding.  then maybe they need the money more than we do.  if we are going to leave it to them anyways.

     

    #65947 Reply
    Avatar hightower 
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    Status: Physician
    Posts: 1448
    Joined: 12/07/2016

    I personally don’t believe it’s good to leave money to heirs.  I just don’t see how inheriting a large sum of money will do anyone any real good.  It just won’t be appreciated as much as money that is earned through hard work. I believe the best gift you can give to your children is to pass on as much wisdom and knowledge as possible.  I wouldn’t have to worry about them being able to provide for themselves knowing that they understand how to work hard and be good people.  No offense to those who clearly would disagree with me.  It’s just my personal opinion.  With that being said, this early in my career when I still have debt and I haven’t built up much of a nest egg yet, I do believe that a sizable life insurance policy for my spouse is important.

    IF I have anything left over when I die, it’s all going to charity, probably the National Park Service and my undergrad college.  There I know my money would be put to work to help society as a whole in a much bigger way then if I left it to only my family.

    #65951 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3338
    Joined: 01/21/2016

     

    I have written about this before– my children have money set aside beyond college expenses in a UTMA, which after college, should be $100-120k per child, to be used as “starting out in life” money– for grad school, to buy a house, to start a business, etc. It’s not enough to make them wealthy and unmotivated but enough to smooth things out and allow them to take some chances before settling in. A physician mentor gave me this idea many years ago, and while it is controversial here, many who would oppose the idea would have been happy to have such a fund (as would I).

    Click to expand…

    I absolutely love that idea. Would fund a gap year, an amazing trip or two, or like you said a stab at a far-fetched dream. But not so much money as to strip them of their motivation.

    If I had had that I basically would have just come out of med school w/ that much less debt, not zero but not $260k.

    Kicking around in all our minds is clearly that many of us on this forum got to where we are through a combo of luck (USA, educational opportunities) and hard work/sacrifice (my car at the end of med school was frankly dangerous to drive). I think we all worry about providing so much to a kid that they miss out on that grit.

    Holy hell is that tough to balance. My wife is interesting in this respect did private HS, private college, private med school all paid for, given new cars etc and came out on the other end with an absolutely insane work ethic. She works like her life depends on it. You can’t always control this stuff I guess.

    Click to expand…

    Like your wife, I had private high school, college, and med school all paid, a new car at age 19, etc. I do not think that having these necessarily saps one’s motivation. Many factors drive work ethic  and the need/desire for money is but one. I know plenty of hard workers that grew up with extreme wealth, and there are plenty of lazy people who grew up poor.

    I think that there is a subgroup of self-made, hard-working, successful people who resent those that started on first base after an intentional walk, rather than in the on-deck circle or on the bench, like they did, if you will excuse the baseball analogy.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #65988 Reply
    Liked by Kamban, Zaphod, Craigy
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5900
    Joined: 01/12/2016

    Holy hell is that tough to balance. My wife is interesting in this respect did private HS, private college, private med school all paid for, given new cars etc and came out on the other end with an absolutely insane work ethic. She works like her life depends on it. You can’t always control this stuff I guess.

    Click to expand…

    Yep, I know we worry about it, but it doesnt seem to have any obvious influence or factor thats easy to control or manipulate in any way. I know people with nothing that dont care at all, the opposite, etc…I had a colleague during training that came from an extremely wealthy family (think two universities with buildings named), they themselves been working like crazy and doing amazing all on their own, and still they crush it. Idk, different people respond to same stimulus/environment differently.

    If your kids seem like the squandering type, maybe try to make them work for it (I have one of these). If they seem to be killers, by all means hook them up. No right/wrong answer.

    #66004 Reply
    Liked by Craigy

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