As a financial advisor, I work with clients with a range of financial strategies, and for a few, the strategy is waiting. And I’m not referring to waiting tables. I’m talking about waiting, as in waiting for their inheritance. For some, this might be the only viable option, but there are pitfalls with this strategy, and sometimes it can be a gamble.
From time to time, when I've questioned a client's overspending, they've admitted that their parents are wealthy, so they don't have to worry. Perhaps they think they have a safety net, or in the end, someone's got their tab. I’ve even heard clients tell their children not to be concerned with finances because they’re covered in their will. In over two decades of working with people and their money, I’ve discovered more than a few dangers in this approach:
- What if by the lucky grace of god your parents live a long, long time? And while life expectancy in America is roughly seventy-eight years of age, it’s not uncommon for someone to live to be ninety-five or even a hundred. How old might you be when that happens? Seventy? Ask seventy-one-year-old Prince Charles how that King of England gig is looking. In some cases, it’s a little too late by the time you receive that inheritance. And remember, most likely you won't inherit anything until your second parent dies.
- What if one parent passes and then the other parent gets remarried? It’s possible that the new stepmom or stepdad intercepts and spends what you assumed was your nest egg?
- Maybe your parents aren't quite as rich as you thought? Rich can mean a lot of things. It can also mean living beyond your means with a high burn rate from years of travel. There are high costs for health care, including long-term care. Don't forget those tuitions for numerous grandkids, and the drain of supporting adult children can all eat into what you thought was going to be your easy street.
- Maybe your parents took the advice of a lawyer or trusted advisor and locked up your inheritance into an irrevocable trust? Even if you and your kids are beneficiaries, there may be significant restrictions on how much and how often funds will be distributed. Tuitions and health-related expenses are usually covered, but summers on Nantucket, country club memberships, and trips to Aspen might be off the list of reimbursable expenses.
That uncomfortable conversation your parents never had with you? When they pass, you might have to face some hard truths. Those leaking gas tanks under the driveway you didn’t know about, the debt they hid, that sure thing investment that turned out to be a scam, the business partner that committed fraud, or the unhappy scenario of the favorite child getting it all. There are actually more ways for an inheritance to go sideways than you might expect.
As always, I’m not saying you shouldn’t enjoy yourself and live for today, but I would say tomorrow has no guarantees. I also know that life, especially a good life, can get very expensive. There’s nothing wrong with factoring in a future family windfall into the financial plan. I’m just saying it shouldn’t be the only plan.
Robert F. Carrigg, Jr., CFP®
rob.carrigg@stewardpartners.com
603-427-8840
ANY OPINIONS ARE THOSE OF ROB CARRIGG, JR., CFP® AND NOT NECESSARILY THOSE OF RAYMOND JAMES. STEWARD PARTNERS GLOBAL ADVISORY LLC AND THE CARRIGG WEALTH MANAGEMENT GROUP MAINTAIN A SEPARATE PROFESSIONAL BUSINESS RELATIONSHIP WITH, AND OUR REGISTERED PROFESSIONALS OFFER SECURITIES THROUGH, RAYMOND JAMES FINANCIAL SERVICES, INC. MEMBER FINRA/SIPC. INVESTMENT ADVISORY SERVICES OFFERED THROUGH STEWARD PARTNERS INVESTMENT ADVISORY LLC.
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