Photo by Andriyko Podilnyk on Unsplash
Inheriting money usually comes with baggage. Only rarely do we inherit money from people who we didn’t know; most of the time we knew and often loved the person who passed away. This means that we often imbue the inheritance with much more weight than any other money we have. Getting a $10,000 bonus will feel very different to many people than inheriting $10,000 from a recently deceased parent.
I find that a lot of people feel a sense of responsibility when they inherit money. I really like that – I always appreciate it when people are intentional with their money, and a sense that they need to be a good steward brings with it a lot of thought to how they’re going to spend it.
A few weeks ago I was in a meeting with a client and she shared with me a story of how she inherited a small amount of money from her grandfather. She was young and poor, and was going to use it on rent or other bills, but her mother stopped her. She told her to spend it on something special. So my client went out and bought a bicycle with it. She told me that she thought of her grandfather almost every time she used that bike. We were both crying by the end of this conversation, and it’s stuck with me as a perfect example of the meaning of inherited money.
Talking about inherited money is always a careful conversation for me. If I sense that the person is overwhelmed with the amount of money, still grieving, or carrying some guilt about being handed money that they feel they don’t deserve, I navigate very carefully.
This sense of responsibility to honor the decedent can sometimes be too much. I had a client who wouldn’t use her inheritance to pay off her credit card debt because her dad didn’t know she had the debt. I’m pretty sure he would have been happy to have her get out from under that debt, but she wouldn’t do it.
Sometimes people are willing to use the money in certain ways (saving for retirement or college but not travel or debt) and so I try to work that preference into the plan. For example, if they won’t use the inheritance towards debt, I’ll suggest that they use the required distributions from an inherited IRA to put directly into a Roth IRA for themselves, and then have them use the money that they were using for retirement to pay down their debt faster.
Sometimes the person doesn’t want to spend any of it. I definitely understand wanting to set aside a new inheritance to give yourself time to think about what you really want to do with it, but sometimes it’s more than that. They insist they have to save it all to leave to their own children. That’s entirely their choice, but just passing down a growing pile of money from one generation to the next doesn’t actually help anyone at all. If you want to leave it to your own children, do you want them saying that they’re never going to use it, and instead leave it to the next generation and the next? I don’t think that’s what you’re hoping will happen, so why do you feel the need to do so?
Recently I’ve been reading about a new trend: some wealthy aging parents give away their money during their lifetimes rather than all upon their deaths. My sense is that this idea has become popular through the book Die With Zero by Bill Perkins. These lifetime gifts often mean that they can enjoy watching their children use it, or perhaps it’s during a particularly tight time in their children’s lives, such as when they have their own young children in daycare.
I can understand why this is appealing to many people, as they can watch their loved ones use the money to make their lives better or to provide opportunities that they otherwise wouldn’t have. It also takes away to some extent the weight of the money upon your death – I don’t see the same ethical struggles when people receive a gift from a living person.
Of course, many people in their retirement years don’t have a large enough nest egg to be confident about giving away large amounts of money without worrying about their own financial stability – this is more for people who don’t have to worry about outliving their money.
Many of us will inherit money at some point over our lives, and my hope is that we take it seriously and use it intentionally, but not ascribe so much meaning and weight to it that we create false narratives of how we must use it.