Should expected inheritance be part of asset allocation?

No. Don't count your chickens until the eggs hatch. You learned that back in grade school. Although you would not want to see it happen, one of your parents could come down with cancer and need expensive long-term treatments and run up huge hospital and nursing home fees. You can wipe out an estate in a heart-beat if something bad happens.

Wait and see what happens. If you inherit anything, deal with it at that time. Otherwise, keep your eyes and hands off of mom & dad's nest egg.

-john-

I echo what John said. Also, have you actually read your parents' wills? You say "it's likely that... " For me, that wouldn't be enough for me to make any radical changes to my financial planning. Presumably one parent will die, then the other one will. The survivor could make changes. Or what John described could happen. Or maybe you're not even in their wills.

Plus, would you really want to know if your parents left you the bulk of their estate? It seems to me that knowing this can tempt a person to do things that are insincere or amount to responses based in bribery; jealousy; greed; etc.

Two cents. If anyone has a good reason for sharing the contents of wills with one's adult offspring, I'd be interested to read it.

So that there are no surprises? In my case, I know that my sister and I will get everything owned by my parents and I plan to give my share to my sister (or charity or a mix, but the choice is up to me). We ourselves are likely to give most of what we have to charity depending on how things go with our children, but we'll definitely let them know when they're old enough. In our families at least it is strongly expected that accumulated wealth will stay in the family.

To the OP, assuming you do know that you'll inherit most of their estate, the advice I'd have is to weigh the risk of something catastrophic happening that could change that (as John pointed out) and your asset allocation. Presumably you can be somewhat more riskier than than others.

--Ram

There is no person on earth that I trust more than my adult offspring. :)

I don't think you can guarantee that there are no surprises. Many unexpected things can happen: maybe your parents live to be 120 years old and have to spend all their assets, maybe they lose a chunk of it to fraudulent investments, who knows?

Of course not, but I won't be surprised in terms of being excluded from the will, or that my sister and I will split whatever's left (that might be zero, but that's an unpredictable situation). It's actually more important the other way, when you don't plan on leaving some or all assets to your children and there's an expectation otherwise.

--Ram

Bucky wrote:

"Ram Samudrala" wrote

Can you give some examples of hypotheticals that would motivate you to leave most of your estate to charity or motivate you to leave most of it to your kids?

Since you are interested in not surprising your kids, are you going to tell them in advance what the criteria is for them to receive the bulk of your estate when you die?

It would mostly be up to the kids (though we'll have a strong influence on the choices they make). For example, I've told my mum to give my share to my sister (since I've not needed it and if there is a catastrophe I trust my sister completely to take care of me) or to charity directly, but she doesn't want to do that. If my kids told me something like this, I'd probably listen to what they wanted.

They'll always be aware of our decisions, yes. Like I said, the expectation in our families is that wealth stays in the family. I'm the first one from my side actually to depart from that due to certain fortunate circumstances, and likewise for my wife. If our kids were in our positions (and we encourage them now to be that way) then we'd encourage them to be generous to the world, but these decisions will be made as a family.

Anyways, more academically/abstractly/generally, in terms of financial planning, I definitely believe in the family being involved in the process particularly if you're close-knit. If the goal of our lives is to help the world to help ourselves and vice versa I an integrated financial plan that takes into account the uses of the money both by you and kids is a good thing. Kids (well-behaved ones at least :) contribute to one's financial success.

--Ram

"Ram Samudrala" wrote Elle wrote

What exactly are you going to tell each of your kids he/she has to do to get your (and your wife's) estate divided by however many kids there are?

I am not getting how doing so is prudent, so maybe the exact words you might use would be helpful to readers here as they help their own kids with financial planning and avoiding "surprises."

There is nothing for them to do, no specific hurdle to jump. As they grow, they'll be involved in the decision making process to a point that it is a mutual decision.

It's not like a if-then-else situation. I'm advocating transparancy. I'm not sure what choices I'd make, or what choices the kids would make over a long time. What I am suggesting is that those choices be communicated clearly and discussed so that there're no surprises.

To give you a concrete example, the gist of my conversation with my mum (over a long period of time) went something like: "I'm going to leave everything you and your sister." And I said "I'd rather you give my share to my sister or to charity." And then she said "I'd rather give it to you and you can make the decision." And I said "Okay." (To Mark Freeland: thanks for the advice. I hadn't thought through the tax consequences yet but I've put it on my todo list to discuss with my tax advisor.)

It's still an ongoing conversation. But we (my sister and I) know where the will stands now and we'd definitely be surprised something other than what we've discussed happened. I'm saying the discussion is important so things don't happen out of the blue (whether they're good or bad).

As our kids grow up, we might start the conversation by something like "what do you think we should do with our estate?" and then go from there.

--Ram

"Ram Samudrala" wrote snip

I'm going to take this (along with all else you said) to mean you're going to leave your kids everything unless they ultimately tell you to do otherwise. So in fact there is nothing that they have to do to get, by default, your estate upon your and your wife's death. They could even make bad decisions with their own money, and you'll still offer them their "fair" share, because to do otherwise would be "surprising" them, and you say you don't want to do this.

Me, I think it's better for the offspring to be taught to assume nothing regarding inheritances. Similarly, it should not be something that parents hold over their kids, like bribery. That way, the offspring's actions as their parents age will be based in love (or not). I go on the assumption that family bribery is inherently bad, as a financial planning and emotional matter. If you don't understand that, discussion will have to wait for another newsgroup.