Do Your Adult Children Understand Inheritance?

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sscritic
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Do Your Adult Children Understand Inheritance?

Post by sscritic »

I have children in their 30s. This post is inspired in part by another thread seeking information about inheritances four months after a death that triggered the dissolution of a trust and in part by my conversation with my daughter this morning.

While waiting for the second grade Thanksgiving play to start, I asked her what taxes would be involved if she were to inherit money (she knows she will; my father is 96 and she will get her half of my portion of his estate). She first said, "isn't there an exemption, or has that expired?" I told her about $5 million and $1 million, and then asked who would pay if there were a tax; she correctly named the deceased. I asked her if her inheritance was income for her, and she said no. I then asked about what if she got stock and then sold it. Here we got a little off track and switched over to the basis of gifts (which she thought should, not did, get a step-up). She did know about the annual gift tax exclusion, but not the exact amount, and while she knew about the estate tax exemption, she didn't realize that the same applied to the gift tax (or that they were unified).

We also talked about my mother's bypass and QTIP trusts and when property did or did not get a step up in basis and when the values were or were not included in the estate for estate tax purposes. The second grade children started marching in at that point, so I know I have to go over the trusts with her again.

Clearly, I have some more explaining to do if she is to be properly prepared for her grandfather's death and my own. In her own defense, she said that since her husband was a lawyer he should know about estate and gift tax so she wasn't that worried. She also isn't worried because she knows she knows how to read, having previously found errors in the state portion of a nationally known tax program (she does their taxes), discovered because she read the directions carefully, more carefully than the programmers of the tax software (I happened to have an in that year having previously discovered another error, so I passed the correction along). So while she doesn't know all she needs to know by heart, she knows how to read the publications and get the answers when the time comes.

So for those of you with adult children, I recommend you don't leave them in the dark until after you die, particularly don't leave your daughters in the dark. Although you would think we would be past this stuff, there are still lots of posts around here about xxx isn't interested. Sometimes xxx is male, but more often xxx is female. It doesn't matter if your children aren't interested (they probably weren't interested in multiplication either), but that's no reason for them not to learn.
mbres60
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Re: Do Your Adult Children Understand Inheritance?

Post by mbres60 »

I have been trying to explain finances to my daughter. I even bought her the Boglehead's book. She has read very little but we have had a few sessions together and therefore has listened to what I have said. We have gone over her and her husbands 401k's to try to get them in the lowest ER possible. It is a start. My other child lives out of state and never has liked to be told what to do. I bought him the books but I doubt he has read them as they don't have extra $$ to invest anyway. It is up to us to do the best we can to teach our kids so they don't wind up at 60 suddenly wanting to learn what to do and find out it is too late.
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ryuns
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Re: Do Your Adult Children Understand Inheritance?

Post by ryuns »

Good post, but honest question: At my young age, there's a very long list of things I've yet to learn about, a medium length list of things I've learned semi-on-the-fly because the time presented itself (I'd never bought a house before, but now I have and I understand it a lot better), and a short list of things that are still not applicable but that I've proactively learned about in order to better plan. Where do you think this issue falls? While my own mom probably has a lot of years left and is well taken care of financially, I've generally imagined that I would figure out the things I needed to figure out about inheritance if such a time ever came up, since I hope I fall in your daughter's category of bright and financially literate.
An inconvenience is only an adventure wrongly considered; an adventure is an inconvenience rightly considered. -- GK Chesterton
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NAVigator
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Re: Do Your Adult Children Understand Inheritance?

Post by NAVigator »

Thanks for the advice about passing on (so to speak) information about inheritance. Like you said, it is not as important to memorize how everything works as it is to know where to investigate and what to look for. I bought books for my two children and tried to guide them through this one chapter at a time. No success. So, I resorted to drafting summaries and sending it to them. This is all done through email due to the distance involved. They are both in their 30's with one living in Europe which adds to the complexity.

My daughter is a research scientist with a PhD and my son is a corporate systems administrator. Both are well past the multiplication-table stage. Still they view an inheritance as something in the distant future. They are co-executors so I sent each a book to guide them through that process. I am currently writing a procedure for inheriting IRA money that they can "stretch" tax-deferred for their retirement. I agree, It is not easy to communicate this stuff.

Jerry
"I was born with nothing and I have most of it left."
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Peter Foley
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Re: Do Your Adult Children Understand Inheritance?

Post by Peter Foley »

Good question at an opportune time for me. One daughter just had her first baby and our second is expecting. Daughter #2 asked about wills and life insurance and went on to discuss that with her older sister. They are now both interested. They both understand gifting and the tax implications, but I will have to sit down and explain the basics of estate planning and inheritance. It is time to update our will with a per stirpes clause.

I think this is a difficult topic for children to raise with their parents - it will be easier if my wife and I take the lead.
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Socrativestor
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Re: Do Your Adult Children Understand Inheritance?

Post by Socrativestor »

I, too, am just beginning to grapple with this -- but at an even earlier point in the process: involving heirs in the estate planning process itself. Rather than present them with a fait accompli that they must then be educated about, the idea is to educate them as part of soliciting their input in a plan they can understand and buy into (so to speak). In fact I just ordered a number of books on family estate planning (used copies are often dirt cheap on Amazon -- I mean, pennies!), most of which I've seen recommended here.
  • Beyond the Grave: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others) by Condon
    Wealth: Grow It, Protect It, Spend It, and Share It by Lucas
    For Love & Money: A Comprehensive Guide to the Successful Generational Transfer of Wealth by Williams and Ingram
    Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values by Williams and Preisser
    Philanthropy, Heirs & Values: How Successful Families Are Using Philanthropy To Prepare Their Heirs For Post-transition Responsibilities by Williams and Preisser
    Family: The Compact Among Generations by Hughes
    Family Wealth--Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations by Hughes
(Total Cost: $59.82)

Several of these books are by The Institute for Preparing Heirs (Motto: "Families traditionally prepare assets for heirs ... we prepare heirs for assets.")

I also found (and recommend):
I'm also in the process of looking for places / people who host / facilitate family estate planning retreats. (In fact I think this would be a great project for the Bogle Center for Financial Literacy.)(Also, building a list of resources in the wiki.)

I'd be interested in hearing of any other resources others have found along these lines.

P.S. According to Preisser in the podcast above, based on Williams' research 70% of heirs undermine / sabotage / defeat (unintentionally or not) the transition plans put in place for their benefit :shock:
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
Polaris
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Re: Do Your Adult Children Understand Inheritance?

Post by Polaris »

NAVigator wrote:My daughter is a research scientist with a PhD and my son is a corporate systems administrator. Both are well past the multiplication-table stage. Still they view an inheritance as something in the distant future. They are co-executors so I sent each a book to guide them through that process.
If I may, which book did you give them? I was named executor for my parents and a good resource could be very beneficial.
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Re: Do Your Adult Children Understand Inheritance?

Post by bsteiner »

We have our clients provide for their children in trust rather than outright. That keeps the inheritance out of the child's estate, and protects against the child's potential creditors (including spouses). If you would otherwise have left the money to the child outright, the child can effectively control his/her own trust. The child can be a trustee, can have the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and can have the power to appoint (give or leave) the trust assets to anyone he/she wants (except the child or his/her estate or creditors).

In the case of retirement benefits, no one older than the person whose life expectancy you want to use in determining the required distributions (generally the oldest child) can ever receive any of the accumulated IRA distributions.
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Jay69
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Re: Do Your Adult Children Understand Inheritance?

Post by Jay69 »

As a side note to this topic, I see many conversations that talk about what happens after death, inheritance etc. The talk that seems to be lacking is what should done/expected after a stroke etc while I'm still here.

We have great well laid out plans on both my parents and my wifes parents for after death but the what to do/wishes if something like a stoke happens was/is not really laid out that well. The other issue is when you lose your first parent and the one left has no clue whats where etc. I can say first hand I wish the parents spent more time on what I want to happen when I'm still here, after all thats what really counts anyway.

After being on the what to do side of things two times now when a parent really needs help I can say the after death issues are a walk in the park.
"Out of clutter, find simplicity” Albert Einstein
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norookie
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Re: Do Your Adult Children Understand Inheritance?

Post by norookie »

Thanks bsteiner,& ssc. :happy
Last edited by norookie on Tue Nov 20, 2012 7:11 am, edited 1 time in total.
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statsguy
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Re: Do Your Adult Children Understand Inheritance?

Post by statsguy »

Statsgal asked me to explain this over Christmas dinner to our two daughters. We (the beautiful Statsgal and I) discussed whether or not to include actual numbers to give them an idea of what to expect. I thought not, but we decided to tell our daughters how much there inheritance would be if we died now.

I am putting together a list of accounts and there options on each account. I also include my suggestion about which option to use even though I realize at that point I am gone and have no say in it.

Excellent topic siscritic

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Re: Do Your Adult Children Understand Inheritance?

Post by Independent »

I don't think I should tell my adult children they should spend time today trying to understand money that they may or may not inherit from me. I'm responsible for my estate planning, not them. I was the executor for two estates, I learned everything I needed to know when I needed it.
If I wanted to help my kids through the process, I'd write out something and file it next to my will. They will find it when they need it.

OTOH, if they ask, I'll answer any questions that I can and help research those I can't. If I were in poor health and this looked like a near-term event, I can imagine them being more interested and I'd try to start the "You will be getting some money from me if I die soon, I'd like to talk about some details while I still can" conversation. If they are interested, we can go on. If not, I wouldn't push it.

Unless kids have unusually wealthy parents, kids shouldn't be planning around inheritances. The money may disappear before the death, the will may give it all to charity, they should be focusing on their own contributions to their financial well-being, etc.
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Re: Do Your Adult Children Understand Inheritance?

Post by exoilman »

reference
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Socrativestor
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Re: Do Your Adult Children Understand Inheritance?

Post by Socrativestor »

In order to not hijack this thread and also to afford myself an opportunity to go off on my own tangent I have begun a related thread that some may find of interest:

From "Estate Planning" to "Family Strategic Planning" Plus
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
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NAVigator
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Re: Do Your Adult Children Understand Inheritance?

Post by NAVigator »

Polaris wrote:
NAVigator wrote:My daughter is a research scientist with a PhD and my son is a corporate systems administrator. Both are well past the multiplication-table stage. Still they view an inheritance as something in the distant future. They are co-executors so I sent each a book to guide them through that process.
If I may, which book did you give them? I was named executor for my parents and a good resource could be very beneficial.
This is the book I sent to them; "How to Settle an Estate", C.K. Plotnick, S.R. Leimberg.

I have no experience with it other than the reviews from people that found it helpful. There may be others.

Jerry
"I was born with nothing and I have most of it left."
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LH
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Re: Do Your Adult Children Understand Inheritance?

Post by LH »

I am an adult child, and I do not per se understand inheritance.

There is a death tax.
There is probate?
Stocks currently get basis stepped up to date of death?
You have to be "bankrupt" until Medicaid kicks in for nursing home care more or less, to use the term bankrupt in the vernacular.

Unpleasant to think about, therefor I haven't really thought much relatively.
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Re: Do Your Adult Children Understand Inheritance?

Post by LH »

bsteiner wrote:We have our clients provide for their children in trust rather than outright. That keeps the inheritance out of the child's estate, and protects against the child's potential creditors (including spouses). If you would otherwise have left the money to the child outright, the child can effectively control his/her own trust. The child can be a trustee, can have the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and can have the power to appoint (give or leave) the trust assets to anyone he/she wants (except the child or his/her estate or creditors).

In the case of retirement benefits, no one older than the person whose life expectancy you want to use in determining the required distributions (generally the oldest child) can ever receive any of the accumulated IRA distributions.

What is the yearly expense of having the funds in a trust? Is it percentage like aum fee?
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LH
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Re: Do Your Adult Children Understand Inheritance?

Post by LH »

Jay69 wrote:As a side note to this topic, I see many conversations that talk about what happens after death, inheritance etc. The talk that seems to be lacking is what should done/expected after a stroke etc while I'm still here.

We have great well laid out plans on both my parents and my wifes parents for after death but the what to do/wishes if something like a stoke happens was/is not really laid out that well. The other issue is when you lose your first parent and the one left has no clue whats where etc. I can say first hand I wish the parents spent more time on what I want to happen when I'm still here, after all thats what really counts anyway.

After being on the what to do side of things two times now when a parent really needs help I can say the after death issues are a walk in the park.
"How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets (6th edition)" (Paperback)
K. Gabriel Heiser 34

That would have bearing after a stroke possibly. I have not read it myself. But have bought it, it's just not a pleasant subject, I did research and have it on kindle. I probably should read it, this gov/tax stuff is more and more important.
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Re: Do Your Adult Children Understand Inheritance?

Post by Gnirk »

Oh, my husband's children understand it well. Their only concern is that he not spend "their" inheritance!
Pretty sad, as he does gift them the max each year.
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Re: Do Your Adult Children Understand Inheritance?

Post by Jerilynn »

Gnirk wrote:Oh, my husband's children understand it well. Their only concern is that he not spend "their" inheritance!
Pretty sad, as he does gift them the max each year.
If he won't spend 'their' inheritance, maybe you should. ;)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
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Re: Do Your Adult Children Understand Inheritance?

Post by Grt2bOutdoors »

Gnirk wrote:Oh, my husband's children understand it well. Their only concern is that he not spend "their" inheritance!
Pretty sad, as he does gift them the max each year.
The kids are on what is called in The Millionaire Next Door - economic outpatient care. Relying on others.
It's much better to teach a man how to fish for themselves than to just keep handing the fish over.
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Re: Do Your Adult Children Understand Inheritance?

Post by Atilla »

Post deleted. :D
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Re: Do Your Adult Children Understand Inheritance?

Post by gerntz »

LH wrote:
bsteiner wrote:We have our clients provide for their children in trust rather than outright. That keeps the inheritance out of the child's estate, and protects against the child's potential creditors (including spouses). If you would otherwise have left the money to the child outright, the child can effectively control his/her own trust. The child can be a trustee, can have the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and can have the power to appoint (give or leave) the trust assets to anyone he/she wants (except the child or his/her estate or creditors).

In the case of retirement benefits, no one older than the person whose life expectancy you want to use in determining the required distributions (generally the oldest child) can ever receive any of the accumulated IRA distributions.

What is the yearly expense of having the funds in a trust? Is it percentage like aum fee?
Totally depends on who manages the trust. You can manage it yourself as trustee. Pretty cheap I'd think - at least till you screw up. The trust can have an advisor like and individual can & so you pay the advisor his/her/its/their going rate.
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Re: Do Your Adult Children Understand Inheritance?

Post by gerntz »

mbres60 wrote: My other child lives out of state and never has liked to be told what to do.
Perhaps explaining why s/he lives out of state? :mrgreen:
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sscritic
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Re: Do Your Adult Children Understand Inheritance?

Post by sscritic »

There is another issue, at least in my state: separate vs community property. While I have noticed some here are philosophically opposed to separate property, my family is not. I have not sat down with my son and DIL, but I have with my daughter and SIL. My SIL fully understands that what she inherits is hers, not his, just as his mother's house will be his and not my daughter's. They each will be in charge of their separate inheritances, although they each might choose to comingle part or all of them. In any case, the discussion between them should not start with "what should we do?" but with "what do you want to do with your money?"

P.S. my trust says that if one of them predeceases me, the money goes to my grandchildren, not the widow(er).
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Re: Do Your Adult Children Understand Inheritance?

Post by Grt2bOutdoors »

Isn't that called "per stirpes"?
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ted123
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Re: Do Your Adult Children Understand Inheritance?

Post by ted123 »

Grt2bOutdoors wrote:Isn't that called "per stirpes"?
Per stirpes means that an inheritance is shared equally between each branch of the family. For example, if I have two grandchildren (A and B) through my son and five grandchildren (C, D, E, F, and G) through my daughter, and I leave my estate to my grandchildren, divided per stirpes, then A and B share 50 percent of the estate and C through G share 50 percent of the estate.

I remember when I was a kid, for Christmas my grandmother would give my brother and me $5 each and my three cousins $3.33 each. Not exactly the same as an inheritance, but similar.
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