The kids will be okay
I was asked a question a while back that completely stumped me. After scrambling to formulate a response and coming up with absolutely nothing, the person asked a follow-up question. And wouldn’t you know it, that question stumped me as well.
I was zero for two. When you dispense advice for a living, that’s not exactly knocking it out of the park.
Neither question was complicated. In fact, the part that bugged me the most was how simple they were. And still, I could not answer them.
So I started researching and thinking.
Before jumping into what I found, I want to share the questions I was asked. The first was, “How much is an appropriate amount to give as an inheritance?” And the second was, “Based on what you’ve seen, what is a typical amount parents leave to their kids?”
Inheritance is a prickly subject. It’s probably the single biggest cause of family infighting. Everyone seems to have an opinion on the topic, or so it seems.
But do you know what’s interesting? The vast majority of families in the United States do not have to worry about inheritances. Why? Because, according to statistics captured in the Survey of Consumer Finances, only 20 percent of households in the U.S. ever receive an inheritance. Which means that 80 percent have not received – nor do they ever expect to receive – any assets at all from their loved ones.
So, if you are contemplating how much to leave as an inheritance, you are in the minority.
The same survey asks people who have received an inheritance in the past how much they received. The average was just more than $700,000 in 2019. But that number is terribly distorted. For the purposes of the question, the lowest anyone could report is one penny, but the upper end could be many billions of dollars. The average, therefore, is skewed by a small number of extremely large inheritances.
A better way to get a sense of the data is by listing out the inheritances, from smallest to biggest, and selecting the inheritance found in the middle of the list – otherwise known as the median. The median inheritance received in 2019 was right around $70,000.
So back to the two questions I could not answer.
One of the reasons I struggled to answer them, I think, is because I intuitively felt the questions were interesting but not at all important. What others do with their wealth should have no bearing on what you do with yours.
But even beyond that, you could rephrase those questions by asking, “How much of my own money should I feel comfortable consuming?” Because what you don’t spend or give away before death is what remains.
When phrased that way, doesn’t it seem like a silly question? It’s yours. Do with it what you want.
An inheritance should not, in my mind, come at the expense of taking vacations, renovating a home or giving to charities. Those activities help lead to a fulfilling life.
Think about it. Let’s say on your death bed you are surrounded by your four children. You have a net worth of $1.2 million. Assuming you split your estate evenly, each child would receive $300,000.
What if, on the other hand, you had used an additional $300,000 of your net worth during your life to spend on yourself or to give to charities? That would leave $900,000, or $225,000 per child. So, here’s a question: Is there so much more in the world someone can do with $300,000 than with $225,000?
But for you, if the $300,000 was spent or given to charity and it produced more smiles or a greater sense of satisfaction, in my mind, the trade-off would have been well worth it.
Don’t worry; the kids will be okay.
It’s your money. Do what makes you the happiest.
Justin Lueger, CFP®, is President of Invisor Financial LLC, a registered investment adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at [email protected]
This column is paid for by Invisor.