I would like my kids to inherit a world where people succeed because of merit and hard work, not entitlement, and where people accept others for what they are and not try to change them.
By AARON KATSMANCalculating taxes(photo credit: INGIMAGE)I would like my kids to inherit a world where people succeed because of merit and hard work, not entitlement, and where people accept others for what they are and not try to change them. – Guy KawasakiAs I have mentioned previously, my children generally read the first paragraph of my column to see if they have been mentioned. Kids, you can stop reading, you aren’t mentioned! Now that they have closed the paper, they won’t see that their father is human. I can go ahead and admit to a mistake that I made in last week’s column. I inadvertently referred to Harvard Law professor Cass Sunstein as “she.” Cass is a man, and I am sorry for the mistake. Thanks to two alert readers who let me know of the mistake.We are in the early stages of the greatest wealth transfer known to mankind. In my non-scientific study, I think that the overwhelming amount of my recent meetings have touched on the inheritance topic in one way or another. Discussing the massive expected wealth transfer, Andrew Osterland of CNBC.com wrote, “This Great Wealth Transfer is about to kick into a higher gear. As much as $68 trillion will change hands between various generations over the next 25 years, according to Cerulli Associates.”This huge amount of money that will change hands poses challenges for both parents and children.MorbidThere are different approaches among financial planners with how to deal with the issue of potential inheritance. There are those who say children should ask, point blank, what they should expect as an inheritance or as a gift, and then they can plan accordingly. I personally hate this approach as I find it a bit morbid. Also, as a child of a mother who was a big believer in the “evil eye” (ayin hara); I am still careful not to try and tempt fate! More importantly we have witnessed many times, like the hi-tech bubble burst of 2000, the 2008 financial crisis and even the recent quick market crash due to coronavirus for example, where certain assumptions on potential inheritances went up in smoke, as the parents were literally wiped out financially.Earlier this week I sat with a couple and as we were talking the issue of inheritance came up. They had a similar approach as I have and they did not at all want to speak about potentially coming into to a lot of money. They repeated that “we don’t want to rely on it, and want to make it on our own.” I couldn’t agree more with this philosophy. Try planning your finances based on what you have, not what you may or may not receive. If you are planning to buy a house, figure your price based on your current assets. I too often see people “over-buy,” buy more than they can afford because they estimate that in 6-8 years they are going to come into a large inheritance. The problem is that in most cases you have no way to know when you are going to get this money.PlanRegarding the need to plan, Mary Ellen Hancock, CFP, vice president and senior wealth strategist at PNC Wealth Management says, “This transfer of wealth will happen regardless of whether boomers and millennials plan for it, but without planning, it could go awry. First, the money could be subject to significant taxes. Second, if you are a beneficiary, you need to be prepared to receive this money, and may want to consider guidelines so that you don’t mishandle it.” Being prepared to receive some amount of money is different than making your whole financial plan based on receiving money sometime down the road.All too often I meet with older baby boomers who have built a nice nest egg, but have done nothing to make sure that it gets passed down to the next generation in its entirety. Especially for duel citizens living in Israel, it is essential to be in touch with professionals who can help navigate the differences in the way inheritances are treated in both countries. Hancock continues, “It’s worth noting that there is no one-size-fits-all strategy to plan for a wealth transfer. If you don’t already have one, build a team of advisers who can help you customize a plan based on your family’s assets, goals and time-frame, among other factors.”
It’s important to add that if you have a will, it should be updated, and if there is none, go to a lawyer and get one drawn up. Also, it is crucial beneficiaries are updated if there is a job change, marriage, have children get divorced or become widowed.Some planning now can go a long way in creating a smooth transfer of wealth in the future.The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.The writer is the author of ‘Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.’ www.gpsinvestor.com; aaron@lighthousecapital.co.il.
