Do you take inheritance into account when calculating net worth?

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squirm
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Do you take inheritance into account when calculating net worth?

Post by squirm » Sun Jan 06, 2019 2:44 pm

In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
I don't but wanted curious what others think.
Last edited by squirm on Sun Jan 06, 2019 2:50 pm, edited 1 time in total.

Leesbro63
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Re: Do you take inheritance into account when calculating net worth?

Post by Leesbro63 » Sun Jan 06, 2019 2:47 pm

Most Bogleheads are going to bristle at your question. And they are usually right: an inheritance is never yours until it’s yours. A lot can happen...long nursing home stays, bad markets, second wives/husbands, financial incompetence, Bernie Madoff.

That being said, for someone expecting an inheritance fairly soon, it probably makes sense to be cognizant of the overall family asset allocation. If grandpa is 85 and has a portfolio of highly appreciated stocks (perhaps not selling because of the step-up in basis at death), the adult children in their 50s/60s might want to lighten up on stocks so the whole multigenerational family won’t experience a 1929, 1966, 1987, 2000 or 2008 too harshly.
Last edited by Leesbro63 on Sun Jan 06, 2019 2:53 pm, edited 2 times in total.

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Raymond
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Re: Do you take inheritance into account when calculating net worth?

Post by Raymond » Sun Jan 06, 2019 2:49 pm

I wouldn't count any potential inheritance as part of net worth.

What if the person with the money has to use it all to pay for medical treatments?

Or decides to give it all to Internet scammers?

Chickens, hatching, etc.

Plus I think it's more than a bit creepy...
Last edited by Raymond on Sun Jan 06, 2019 2:49 pm, edited 1 time in total.
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Re: Do you take inheritance into account when calculating net worth?

Post by Sandi_k » Sun Jan 06, 2019 2:49 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
Nope. Not MY net worth.

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Re: Do you take inheritance into account when calculating net worth?

Post by Sandtrap » Sun Jan 06, 2019 2:50 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
Yes.
An inheritance is part of one's net worth.. .

. . . When it is in your accounts under your name . . . . with no future liens or encumbrances or claims to it.
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chevca
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Re: Do you take inheritance into account when calculating net worth?

Post by chevca » Sun Jan 06, 2019 2:53 pm

Nope, not until it's inherited.

But, according to the forum, folks count net worth hundreds of different ways. So, do as you please. :happy

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Re: Do you take inheritance into account when calculating net worth?

Post by 123 » Sun Jan 06, 2019 2:54 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
I don't but wanted curious what others think.
The Boglehead approach would be to not include things like future inheritances, future lottery winnings, or future gambling winnings.
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Re: Do you take inheritance into account when calculating net worth?

Post by nisiprius » Sun Jan 06, 2019 2:56 pm

1) I don't think "net worth" is useful for anything other than letting financial advisors and others judge how good a prospect you are. It's not something you need to know yourself, and not something you want other people to know, it's something other people want to know about you.

2) No, I would only count things that you own as net worth. You don't own your inheritance until you inherit it. (Another thing I wouldn't count as net worth is the present value of estimated future salary, for example).
Last edited by nisiprius on Sun Jan 06, 2019 3:17 pm, edited 2 times in total.
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Re: Do you take inheritance into account when calculating net worth?

Post by stan1 » Sun Jan 06, 2019 2:59 pm

I do not count any future windfall as part of my net worth. That goes for inheritance, lawsuit, or insurance settlement. I also do not include future income streams such as salary, social security, pension income, annuity payments or dividend payments as part of net worth.

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Re: Do you take inheritance into account when calculating net worth?

Post by hdas » Sun Jan 06, 2019 3:02 pm

This is a fascinating question. Like most issues, the optimal approach depends on the particular situation. That being said there’s a conservative - reckless spectrum, here are some key variables:

1. Estimated date for windfall
2. Current status and quality of financial management
3. How robust is the potential inheritance to catastrophic events (health, mental health, etc)
4. Legal arrangements in place

To bring the topic home, I do consider a bit the exposure to particular assets that are overweight in the potential inheritance (Real Estate & Artwork). Otherwise I assume that there will be 0 inheritance and my financial plan has to be robust to that.

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Re: Do you take inheritance into account when calculating net worth?

Post by delamer » Sun Jan 06, 2019 3:02 pm

nisiprius wrote:
Sun Jan 06, 2019 2:56 pm
1) I don't think "net worth" is useful for anything other than letting financial advisors judge how good a prospect you are, and whether they can put you into riskier investments.

2) No, I would only count things that you own as net worth. You don't own your inheritance until you inherit it. (Another thing I wouldn't count as net worth is the present value of estimate future salary, for example).
Agreed.

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Re: Do you take inheritance into account when calculating net worth?

Post by LilyFleur » Sun Jan 06, 2019 3:06 pm

However, if the person is on hospice, I would absolutely have them take a distribution if they have an IRA or 401k that would cover their funeral costs, if their taxable income is much lower than yours (especially if they haven't already taken their RMD for the year). Presumably if they are on hospice, there is someone with financial power of attorney who could do this.

My siblings and I felt that our parents' money was theirs and was to be used for their care. We made sure they had the highest level of care, and it is very expensive. My mom's care was running $15,000 a month the last few months of her life (her nursing home insurance reduced the cost by about $5,000 per month). It was unimaginable to us that she would not have wonderful caregivers and be absolutely safe and clean and as happy as possible. Of course this reduced our inheritance. It really helps if all the children agree on the priorities.

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Re: Do you take inheritance into account when calculating net worth?

Post by Blake7 » Sun Jan 06, 2019 3:11 pm

Not me. Networth is a snapshot at the time you calculate it. Current assets minus liabilities.

"Net worth, including potential inheritances" is what I would call your question, but it's a worthless metric.

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Re: Do you take inheritance into account when calculating net worth?

Post by livesoft » Sun Jan 06, 2019 3:13 pm

Future inheritances, no, absolutely not.
Past inheritances, yes.
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Re: Do you take inheritance into account when calculating net worth?

Post by skepticalobserver » Sun Jan 06, 2019 3:13 pm

Apparently at one time credit was extended on the basis of inheritance, such loans called post-obit bonds, https://definitions.uslegal.com/p/post-obit-bond/

I learned of these by reading a few Trollope novels, particularly “Mr. Scarborough’s Family.” Of course, this was at a time when the law of primogeniture was in force (might a reversionary interest in a life estate have the same effect today?)

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Re: Do you take inheritance into account when calculating net worth?

Post by Phineas J. Whoopee » Sun Jan 06, 2019 3:16 pm

No. Any of us could die of anything at any time.

I might die first.

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Re: Do you take inheritance into account when calculating net worth?

Post by nisiprius » Sun Jan 06, 2019 3:18 pm

Phineas J. Whoopee wrote:
Sun Jan 06, 2019 3:16 pm
No. Any of us could die of anything at any time.

I might die first.

PJW
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Re: Do you take inheritance into account when calculating net worth?

Post by GCD » Sun Jan 06, 2019 3:34 pm

Not worth repeating, but I can't help myself.

Net Worth = Assets - Liabilities.

Someone else's money isn't yours so you can't count it as an asset.

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Re: Do you take inheritance into account when calculating net worth?

Post by 123 » Sun Jan 06, 2019 3:42 pm

You're folling yourself if you count an inheitance as a part of your net worth because that would be counting it twice. Until the point of passing the inheritance counts as the asset of the person who owns it.

A person who counts an inheritance as part of their net worth may also also counting the credit line on their credit cards as part of their net worth as well.
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Re: Do you take inheritance into account when calculating net worth?

Post by TheHouse7 » Sun Jan 06, 2019 3:53 pm

No, no body knows when they will die, act and account accordingly.
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Re: Do you take inheritance into account when calculating net worth?

Post by Stormbringer » Sun Jan 06, 2019 4:06 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
I don't but wanted curious what others think.
Net worth is a balance sheet construct. The same assets can't be double-counted on two different balance sheets (yours and the person you inherit from), so I would say no.

However, that doesn't mean it can't be accounted for in your retirement planning, if you are reasonable certain about it.
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Re: Do you take inheritance into account when calculating net worth?

Post by nguy44 » Sun Jan 06, 2019 4:38 pm

Do not count it until you actually receive it. Treat it as an unexpected surprise. Do not factor it in at all. The future is unknown, a lot can happen.

We did receive an inheritance from my parents estate (a separate thread on here as, some of it was through a sibling), but until the checks cleared we did not plan for it in any way, shape, or fashion. MIL has already told DW her inheritance when MIL dies, but we are not counting on it at all, particularly with the dysfunction in her family. When her Dad died years ago DW was supposed to receive something from him, but he never put it in a will, and DW never did. Fortunately we never counted on that one, either.

We can name about 6 friends who counted on an inheritance and ended up never receiving it, and boy did it cause disruption in their lives.

Keep your net worth calculation simple, I say - the Assets you currently have, minus the Liabilities you currently have. That makes in much better for retirement planning.

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Re: Do you take inheritance into account when calculating net worth?

Post by Nate79 » Sun Jan 06, 2019 5:06 pm

Nope, not at all because fundamentally the equation is what it is. It is not your asset until it is in your name and you have rights to it.

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Re: Do you take inheritance into account when calculating net worth?

Post by vineviz » Sun Jan 06, 2019 5:30 pm

nisiprius wrote:
Sun Jan 06, 2019 2:56 pm
1) I don't think "net worth" is useful for anything other than letting financial advisors and others judge how good a prospect you are. It's not something you need to know yourself, and not something you want other people to know, it's something other people want to know about you.

2) No, I would only count things that you own as net worth. You don't own your inheritance until you inherit it. (Another thing I wouldn't count as net worth is the present value of estimated future salary, for example).
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Re: Do you take inheritance into account when calculating net worth?

Post by HomerJ » Sun Jan 06, 2019 5:42 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
I don't but wanted curious what others think.
Of course not.

Some lucky people, I suppose, can consider future inheritances when making a retirement plan (although one should be VERY careful when doing so).

But no one should be able to count it in their current net worth. That's doesn't make any sense at all.
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Re: Do you take inheritance into account when calculating net worth?

Post by stoptothink » Sun Jan 06, 2019 5:47 pm

Should I consider the money I set aside to financially assist my in-laws (and very likely my own parents soon) as part of my net worth?

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Re: Do you take inheritance into account when calculating net worth?

Post by CascadiaSoonish » Sun Jan 06, 2019 5:57 pm

I don't disagree with any of what has been said here already -- and I also agree that it's rather cold + morbid to be plugging in others' assets into a spreadsheet or whatever.

That said, I do think it's reasonable to make some planning assumptions based on a broad understanding of family assets and intentions. Example: when a senior family member has written instructions in a trust or will covering funds that are intended for a specific purpose (such as the education of grandchildren) parental front-loading of a 529 may not be the best choice. Similarly, someone else already pointed out that it may be worth considering asset allocation strategies across generations; if Aunt Mabel's millions are 100% in bonds at age 105, maybe the next generation should choose 70/30 instead of 60/40.

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Re: Do you take inheritance into account when calculating net worth?

Post by Retired2013 » Sun Jan 06, 2019 6:00 pm

No. What number would you even use? Do you know what they are worth? What if everything goes to charity?

My mother was 87 before she asked me to take over her finances because she was legally blind. I had no clue what she was worth until then. My siblings never found out until after she passed-away and I held a family meeting. We were all shocked at what she had. We all thought she was living on just SS.

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Re: Do you take inheritance into account when calculating net worth?

Post by Grt2bOutdoors » Sun Jan 06, 2019 6:03 pm

What inheritance?
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Re: Do you take inheritance into account when calculating net worth?

Post by BostonBoy » Sun Jan 06, 2019 6:12 pm

No, I wouldn't.

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Re: Do you take inheritance into account when calculating net worth?

Post by Blake7 » Sun Jan 06, 2019 6:18 pm

stoptothink wrote:
Sun Jan 06, 2019 5:47 pm
Should I consider the money I set aside to financially assist my in-laws (and very likely my own parents soon) as part of my net worth?
Yes, until you actually give it to them.

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Re: Do you take inheritance into account when calculating net worth?

Post by UpperNwGuy » Sun Jan 06, 2019 6:21 pm

Absolutely not! My 97 year old father has a robust investment portfolio, but it is his, not mine. I expect to inherit my share of it someday, but until that happens, it would be rude (and premature) to count it as mine. My brothers and sisters feel the same way.

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Re: Do you take inheritance into account when calculating net worth?

Post by Rus In Urbe » Sun Jan 06, 2019 6:32 pm

Hell no.

For all the reasons mentioned already --- and for the psychological damage it does to your current thinking, independence and dignity.

Even if an inheritance comes without strings attached of any kind, the less one thinks about or plans on it, the better. Stuff happens. Wills get changed, people get sick, money gets lost. And then what? You've planned on something that never happens and you've wasted years of your life.

Hell no.

Think of an inheritance as extra credit. A someday windfall. Remember that thing about counting chickens before they are hatched....
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Re: Do you take inheritance into account when calculating net worth?

Post by user5027 » Sun Jan 06, 2019 9:17 pm

I've posted before...

I am reminded of the joke about the guy bragging to his date that he will be coming into a sizable inheritance when his old sick father dies. The date quickly runs off and marries his father.

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Re: Do you take inheritance into account when calculating net worth?

Post by sambb » Sun Jan 06, 2019 9:26 pm

Net worth = all assets minus all liabilities to me

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Re: Do you take inheritance into account when calculating net worth?

Post by ionball » Sun Jan 06, 2019 9:27 pm

No. Too many pitfalls with the expectation.

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Re: Do you take inheritance into account when calculating net worth?

Post by lexie2000 » Sun Jan 06, 2019 9:31 pm

Absolutely not.

I plan as if I will never inherit...cuz I might not; but I knew more than one person that inheritance was there retirement plan.

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Re: Do you take inheritance into account when calculating net worth?

Post by Nate79 » Sun Jan 06, 2019 9:38 pm

Even asking the question is a little strange.

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Re: Do you take inheritance into account when calculating net worth?

Post by dbcooper » Sun Jan 06, 2019 9:54 pm

Being the new guy here I will put my neck on the chopping block!

Yes I would consider it in some fashion. The amount is not so much the import part its more where its invested. Life is a all a gamble but I plan on telling our kids where a majority of our funds invested at some point when it make sense. It may make a difference where they want to invest their nickles. They are smart enough the know they may not get anything in the end.

I look at it no different then trying to invest in such a way to keep the tax man at bay 30 years from now, in others words its any ones guess. Our kids may be way better off investing in Roths if most of what we send them will come in a way of a tIRA, just an example.

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Re: Do you take inheritance into account when calculating net worth?

Post by Gnirk » Sun Jan 06, 2019 9:59 pm

No....because it isn't YOURS, yet. And may never be because you never know what might happen.

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Re: Do you take inheritance into account when calculating net worth?

Post by SoAnyway » Sun Jan 06, 2019 10:03 pm

nisiprius wrote:
Sun Jan 06, 2019 2:56 pm
1) I don't think "net worth" is useful for anything other than letting financial advisors and others judge how good a prospect you are. It's not something you need to know yourself, and not something you want other people to know, it's something other people want to know about you.
Another brilliantly succinct statement from nisiprius. I couldn't agree more. That's why I don't even bother to calculate mine. Ever. I don't need that metric to feel good about where I am financially, and I certainly don't need to try to "game" the number with myself in order to make it bigger.
nisiprius wrote:
Sun Jan 06, 2019 2:56 pm
2) No, I would only count things that you own as net worth. You don't own your inheritance until you inherit it. (Another thing I wouldn't count as net worth is the present value of estimated future salary, for example).
As others have said, if it's not part of YOUR assets, OP, it's not part of YOUR net worth. And btw, just because you do own something doesn't mean you have to include it in your net worth, to the extent you find the metric useful at all. For example, you own your furniture, clothes, shoes, power tools, kitchen utensils, toiletries, etc. etc. and presumably they have *some* non-zero value. I'm guessing, though, that the "audience" for your net worth number (see #1 above) would nevertheless assign it a zero value.
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Re: Do you take inheritance into account when calculating net worth?

Post by Rus In Urbe » Mon Jan 07, 2019 8:38 am

I am reminded of the joke about the guy bragging to his date that he will be coming into a sizable inheritance when his old sick father dies. The date quickly runs off and marries his father.
@user5027
Thanks for the best laugh this week.

You only have to read Marketwatch's advice columnist, The Moneyist, to realize how fraught is the whole subject of inheritance. There are numerous letters on the subject.

Betrayal, envy, rage, greed and great expectations---all there, wrapped up in the subject of inheritance. Whew.
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Re: Do you take inheritance into account when calculating net worth?

Post by alfaspider » Mon Jan 07, 2019 10:35 am

It can't hurt to be cognizant of it, but including it in your net worth is basically the definition of counting your chickens before they hatch. Until the will is probated and the assets are in your account, you can never be certain of inheriting anything.

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Re: Do you take inheritance into account when calculating net worth?

Post by delamer » Mon Jan 07, 2019 11:03 am

Retired2013 wrote:
Sun Jan 06, 2019 6:00 pm
No. What number would you even use? Do you know what they are worth? What if everything goes to charity?

My mother was 87 before she asked me to take over her finances because she was legally blind. I had no clue what she was worth until then. My siblings never found out until after she passed-away and I held a family meeting. We were all shocked at what she had. We all thought she was living on just SS.
A lot of people with elderly parents are very familiar with their elders’ financial situation.

I knew the basics once my father retired and became much more involved once my mother was widowed.

To me, it is surprising that you knew nothing about your mother’s finances (or her estate) until she could no longer manage them.

But different families operate differently. Our 20-something kids know the basics of our finances, particularly what our assets are and where to find the account details. And they know who our attorney is and which friend is our executor. I want them to be prepared if we die prematurely.

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Re: Do you take inheritance into account when calculating net worth?

Post by GAAP » Tue Jan 08, 2019 2:21 pm

Would you count future Lotto winnings as part of your net worth?

Until you inherit, it's not yours -- and therefore not an asset to include in your net worth.
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Re: Do you take inheritance into account when calculating net worth?

Post by Patzer » Tue Jan 08, 2019 3:04 pm

No, a few examples:
1. A family member gave all his wealth away to some con artists in his last few years.
2. A friend's parents planned to give them a large inheritance, told him that, and even went as far as to share their investment statements with him. Many years have passed, they are still alive, in their 90s, and down to 5 years expenses.

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Re: Do you take inheritance into account when calculating net worth?

Post by cadreamer2015 » Tue Jan 08, 2019 3:12 pm

I count neither potential inheritances nor pensions/social security into net worth. Pensions and social security are streams of income which reduce the amount needed to fund retirement, but are not assets and not counted in net worth. As someone above wrote, potential inheritance is part of the net worth of someone else and shouldn't be double counted in my net worth too. My Mom is 100 years old and I don't count her assets in my net worth.
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Re: Do you take inheritance into account when calculating net worth?

Post by michaeljc70 » Tue Jan 08, 2019 3:18 pm

No. There are 4 kids. I would hope there still will be 4 living kids when my parents go, but who knows. I have no idea how much my parents have (okay, I have some idea). I have no idea how much they will have when they go. I could go before they go. A lot can happen.

I do keep it in the back of my mind as a possible contingency if things really go south in my retirement planning though.

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Re: Do you take inheritance into account when calculating net worth?

Post by JoeRetire » Tue Jan 08, 2019 3:56 pm

squirm wrote:
Sun Jan 06, 2019 2:44 pm
In the past, I asked about taking into account pensions when calculating ones net worth. What about future inheritances?
I don't but wanted curious what others think.
If your definition of Net Worth includes all potential sources of income before you have control of them, then I guess you should.

Thus not only should you include whatever it is that you imagine you'll inherit but also:
- potential social security benefits value
- potential lottery winnings
- money you expect to find in your sofa cushions over time
- all future wages
- the money you'll make from wagers when your favorite team wins the Super Bowl
- any other income you see in your crystal ball

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Re: Do you take inheritance into account when calculating net worth?

Post by 2015 » Tue Jan 08, 2019 9:39 pm

dbcooper wrote:
Sun Jan 06, 2019 9:54 pm
Being the new guy here I will put my neck on the chopping block!

Yes I would consider it in some fashion. The amount is not so much the import part its more where its invested. Life is a all a gamble but I plan on telling our kids where a majority of our funds invested at some point when it make sense. It may make a difference where they want to invest their nickles. They are smart enough the know they may not get anything in the end.

...
I've told my brothers and sisters my nieces and nephews will be inheriting my estate but to say nothing at this time as I want to avoid anyone coming over and kicking me down the stairs.

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