Financial PlanningRetirementTax Planning

America’s evolving attitudes about inheritance

When it comes to money, we are still not communicating well with family and advisers. Estate tax laws aren’t helping.

A new report by Hearts and Wallets provides some fascinating insights on America’s evolving attitudes about inheritances, including:

“only 27% of the parents surveyed have told their children how much they are likely to inherit”

“only 20% strongly agreed that their children will be prepared to handle the wealth they’ll receive”.

“parents who plan to leave a legacy aren’t necessarily more generous than those who plan to spend it all,,, They are the most terrified by the big retirement fear: running out of money”

“Parents clearly have more burden getting to retirement, but non-parents carry more of a burden in retirement,”

“Non-parents more often say they are unsure who will help them when they become infirm. It’s not so much about the money, but having a trusted caretaker to take them to the doctor and help with bill paying. Parents often see children in these roles.”

The article suggests that we are not making full use of the financial options that are available. Clearly these are not easy decisions for many of us. Yet in past generations the estate tax served as a strong silent motivator to push people into making decisions about their assets. That is no longer the case for the large majority of moderately wealthy Americans. Current law effectively allows most of us to pass on whatever we have tax free. This is an easy decision but often not the best option.

This article summarizes the largest challenge I face in my daily work getting people to talk about the issues: “Finding the right professional is challenging, especially given that advice is still perceived as being “free.” Good advisors continue to bear the burden of peers who did not meet the expectations of consumers”I would state the problem more bluntly: the majority of the life insurance and financial planning industries have done a disservice to our nation through self-serving business models that hinder many clients from taking steps that would otherwise improve their financial well-being. I personally feel like I need to have a conversation to undo the ill-effects of others’ efforts in the past before I can even open a conversation with a prospective client about what makes sense for their situation.

Moreover, the article reminds me of the larger political issue at issue at work here, Despite the fact that there continues to be no demonstrated societal value in the practice of passing money at death to our heirs, this practice remains at the core of our financial values. IMO, the absence of effective  deterrents (estate taxes) is financially destroying the nation by directing large amounts of money away from more productive uses and into the less productive hands of heirs.

In essence, unfettered inheritance is a man-made economic drag on the economy that needs to be evaluated from a cost-benefit perspective. It is clear from this survey that attitudes have changed and it is easy to argue that the change is facilitated by our relaxed estate tax laws. Yet this is the system we live with; apparently unlikely to change much anytime soon. Given that, the immediate goal – as with all financial planning – should be ‘how do we make the best from what we have to work with right now’.

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