[NA] inheritance for kids?!

saracelica

saracelica

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saracelica
My co workers are all lot retirement age some collecting pension and Medicare but like to get out of the house and make some money.

Was talking with one of them and was told they owe $100k in medical bills and so that's why they are working. The kicker? They have a million dollars in retirement accounts (that he can draw from with no penalty due to age) but he wants to leave it to his kids.

As a kid to parents of that age that'd be nice but I was raised to have my own money and hope my parents enjoy their lives and spend my inheritance.... They won't but geez.
 
Several comments -

1. A million in taxable retirement accounts is more like $850K and not much money these days in retirement. It’s unlikely all of it would go to the kids.
2. They saved the money and they can do with it what they want - most don’t save squat
3. If they have $100K in medical bills, they may have current and future health issues. This maybe be a strong family where the children are going to care for their parents as they age vs paying elder care and the parent believes the children should be compensated for this.
4. Just because you are retired, have a pension and over a million dollars doesn’t mean you don’t enjoy working and giving to your children.
 
I'm also working past retirement (well, past early retirement), but I work from home 99% of the time, and I rarely work after-hours, so it's not like real work! My retirement may consist of getting my CFI and free-lancing; may as well have others pay for my flying.
My GF's parents are moderately wealthy; she and her sister (their only kids) tried to get them to spend some of that money, but they had the same reason: saving it for the kids. Finally they were convinced that the kids would do OK, it was their money, and now they travel about 150 days a year (something I couldn't stand, give me a pond and book and a fishing pole, please). Being midwestern farm stock, they are reasonably frugal, and get the best deal for their dollar, in any case.
But I'm not sure what I'd do with the medical dept. I'd certainly not pay off the $100K in a lump; in fact, with decent insurance, I'm rather surprised that one could get that far in debt without chronic conditions. (We racked up a quarter million in bills when a shattered ankle, a crushed foot, and then cancer, visited our house. We've just finished paying off anything not covered; it was tough but not heinous.)
 
People work for all sorts of motives.
Longevity has increased.
Many people are healthier in their 60s, physically and mentally, than prior generations.
3+ decades of real income suppression, combined with inflation and low returns on savings.
The opportunity for human connection and social interaction, in this day when many families break up due to parents splitting and some end up living on their own.
For serial entrepreneurs the opportunity and pleasure building yet another business (that's my excuse for coming out of "retirement").

Saving the money for the kids seems a poor reason. Why not just give it to them now?
 
GRG55 said:
People work for all sorts of motives.
Longevity has increased.
Many people are healthier in their 60s, physically and mentally, than prior generations.
3+ decades of real income suppression, combined with inflation and low returns on savings.
The opportunity for human connection and social interaction, in this day when many families break up due to parents splitting and some end up living on their own.
For serial entrepreneurs the opportunity and pleasure building yet another business (that's my excuse for coming out of "retirement").

Saving the money for the kids seems a poor reason. Why not just give it to them now?
Click to expand...

See my #1
 
I grew up dirt poor, my parents were not involved in my life, and I knew there was not even a nickel to inherit...didn't bother me a bit.
 
Sometimes people put so many years of effort into building that nest egg they can’t bring themselves to spend it down. Sometimes there’s a real fear of running out, sometimes it’s an emotional attachment and passing it along is a way of keeping it alive. It’s their choice.
 
Yeah, there’s a school of thought that instead of giving an inheritance after you die, just do it while you’re alive so you can see the joy/enjoyment.

I am hopeful that both my kids will be self sufficient enough to not need anything from me. We shall see.
 
saracelica said:
Was talking with one of them and was told they owe $100k in medical bills and so that's why they are working. The kicker? They have a million dollars in retirement accounts (that he can draw from with no penalty due to age) but he wants to leave it to his kids.
Click to expand...

As someone pointed out, you don't know what expenses are coming. Medical expenses and long term care can get very expensive. My father needs 24 hour care in addition to living in assisted living. His long term care insurance pays ~$70K/yr. Because of the 24 hour personal care, he's spending ~$200k out of pocket a year for that. Luckily he and my mom saved pretty well, so he still has money in the bank after 6 years of that.

I have no idea how we'd have taken care of him if he didn't have substantial savings.
 
My wife likes to say "You can't take it with you and the kids don't deserve it." However, if they likely will get a pretty tidy sum after we both path, just as I'm in for a small sum from my father when he (hopefully no time soon) passes.

By the way, the "God Bless the Child" is sort of a reverse thing. Billie Holiday had given her mother money to start a restaurant and further money to keep it going. In one of Billie's periodic monetary hard times, she asked for some money from her mother, who wouldn't give her anything. This inspired her to write the song, though co-author, Arthur Herzog stated he wrote most of the lyrics based on Holiday's relating her problem over a dinner.
 
I don’t know if we’ll leave a large estate for our kids or not. Depends a lot on how long I live. I don’t want to just dump a load of cash on our adult kids or grandkids, though. I would much rather use whatever we leave behind to encourage the next few generations to manage their money well and establish some “family money”. We certainly won’t have enough to make anyone rich, but we figure it would be really nice to be able to provide a little extra for education or vocational training, a little leg up for newlyweds, that sort of thing.

Or I guess I could just blow it all on hookers and booze.
 
455 Bravo Uniform said:
Yeah, there’s a school of thought that instead of giving an inheritance after you die, just do it while you’re alive so you can see the joy/enjoyment.

I am hopeful that both my kids will be self sufficient enough to not need anything from me. We shall see.
Click to expand...
My brother made a point of informing our parents that they can gift to their kids tax free annually thus avoiding some inheritance tax (Currently the limit is 15k/yr). He was looking out for their best interests...
 
FORANE said:
My brother made a point of informing our parents that they can gift to their kids tax free annually thus avoiding some inheritance tax (Currently the limit is 15k/yr). He was looking out for their best interests...
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Well, except that it's wrong (at least federally).

First, there's no federal INHERITANCE tax. There's a federal ESTATE and GIFT tax. However, unless your aggregate gifts/estate is in excess of $11.4 million you don't owe any tax. $15,000 is not the amount where you start paying taxes, it's the point where you don't have the report the gift so that it isn't subject to counting against your $11.4MM exemption.

Most of the states follow the fed guidelines, but there are a few that are different.
 
flyingron said:
Well, except that it's wrong (at least federally).

First, there's no federal INHERITANCE tax. There's a federal ESTATE and GIFT tax. However, unless your aggregate gifts/estate is in excess of $11.4 million you don't owe any tax. $15,000 is not the amount where you start paying taxes, it's the point where you don't have the report the gift so that it isn't subject to counting against your $11.4MM exemption.

Most of the states follow the fed guidelines, but there are a few that are different.
Click to expand...
Their estate will be well north of that figure. The point is he actually sent them a letter with a recommendation that they act now to reduce the ( I guess properly referred to as ) estate tax by gifting annually to their kids. Who does that?
 
My son is autistic and currently struggles greatly with communication and learning activities in special education. At 5 years old his teachers, and us, all think he may actually have a memory like they've never seen and capable of much more than even some of the smartest kids in regular classes. They think this level of learning is boring to him, and I agree, having seen some of the things he's done outside of school, but right now he can't tell you what he wants to eat or do.

He may be incredibly smart, but that doesn't mean he'll be able to lead a normal life. For that reason, I'm trying to get to a place financially to leave him set up for good life when we're gone.

If it turns out he goes on to do great things and doesn't need our money, I'll spend it on a sailboat and cruise to fabulous islands.
 
FORANE said:
Their estate will be well north of that figure. The point is he actually sent them a letter with a recommendation that they act now to reduce the ( I guess properly referred to as ) estate tax by gifting annually to their kids. Who does that?
Click to expand...

Via letter ? That's hilarious. Most likely answer: Someone who is somewhat socially inept.



I actually had that conversation with my parents many years ago. But that was in person and part of a general 'so how do you guys plan to do all this' discussion. Inheritance tax kicks in at ridiculously low levels in germany.
 
455 Bravo Uniform said:
Yeah, there’s a school of thought that instead of giving an inheritance after you die, just do it while you’re alive so you can see the joy/enjoyment.

I am hopeful that both my kids will be self sufficient enough to not need anything from me. We shall see.
Click to expand...

I have not thought so much about inheritance, but I have thought about gifting a down payment for the house when she is ready. I have also thought about starting a Roth IRA for her. She is 20 yr. old and pays for her own college costs, mostly..
 
FORANE said:
Their estate will be well north of that figure. The point is he actually sent them a letter with a recommendation that they act now to reduce the ( I guess properly referred to as ) estate tax by gifting annually to their kids. Who does that?
Click to expand...
I don't give my kids any large sums, but I am funding my grandkid's college funds.
 
FORANE said:
Their estate will be well north of that figure. The point is he actually sent them a letter with a recommendation that they act now to reduce the ( I guess properly referred to as ) estate tax by gifting annually to their kids. Who does that?
Click to expand...

Another strategy involves life insurance. My elderly mom bought a policy with very high annual premiums. The key is, those premiums came out her assets, but on her death the large insurance payout to the benefactor (me) was tax free. She also employed a Generation Skipping Trust to avoid the possible “double taxation” that could have eventually affected my daughter.

Of course, when it gets to this level, a good estate planner is essential. But with the new thresholds for the Estate Tax, all this affects fewer and fewer people.
 
Morgan3820 said:
I have not thought so much about inheritance, but I have thought about gifting a down payment for the house when she is ready.
Click to expand...

I think most know this, but there’s no limit as to how much you can gift in any given year. It’s when it exceeds a certain amount that the recipient has to declare the excess as income, and so may have to pay taxes on it.
 
FastEddieB said:
I think most know this, but there’s no limit as to how much you can gift in any given year. It’s when it exceeds a certain amount that the recipient has to declare the excess as income, and so may have to pay taxes on it.
Click to expand...

you sure?

from IRS:

Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.
Click to expand...
 
weilke said:
Via letter ? That's hilarious. Most likely answer: Someone who is somewhat socially inept.
Click to expand...
Yes, via letter, complete with a clipped article about the benefit of annual gifting to your children.
 
Fiveslide said:
My son is autistic ... I'm trying to get to a place financially to leave him set up for good life when we're gone. ...
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You probably know this but just in case (and maybe for others):

Providing money to a special needs individual must be done with great care. A straight inheritance, for example, is probably the worst way because he/she will have assets that probably must be spent down before any available government support kicks in. In effect, the inheritance goes to the government. The way the transfer is done is via a "special needs trust," specifically written to be supplemental to government assistance. This takes a specialist trusts & estates attorney to draft and get it right. (If it's not right, it's unfixable because you are dead. Don't hire a generalist attorney.)

And just like computer backup (you only need to do it once -- on the day before the fire) you only need to get this in place prior to your and your wife's deaths. Airplane crash tomorrow? Postpone it.
 
airdale said:
You probably know this but just in case (and maybe for others):

Providing money to a special needs individual must be done with great care. A straight inheritance, for example, is probably the worst way because he/she will have assets that probably must be spent down before any available government support kicks in. In effect, the inheritance goes to the government. The way the transfer is done is via a "special needs trust," specifically written to be supplemental to government assistance. This takes a specialist trusts & estates attorney to draft and get it right. (If it's not right, it's unfixable because you are dead. Don't hire a generalist attorney.)

And just like computer backup (you only need to do it once -- on the day before the fire) you only need to get this in place prior to your and your wife's deaths. Airplane crash tomorrow? Postpone it.
Click to expand...

Thank you for this advice, I did not know this. We're just getting to the point where we need to know this. Before he was born and my wife got hurt, we poured money into a boat that we lived aboard and traveling, not thinking too far into the future. I literally knocked her up the day I left for a two week yacht delivery.

Time to really buckle down and pay off the house and pack away money just in case.
 
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Morgan3820 said:
I have not thought so much about inheritance, but I have thought about gifting a down payment for the house when she is ready. I have also thought about starting a Roth IRA for her. She is 20 yr. old and pays for her own college costs, mostly..
Click to expand...

That’s a fine idea. Kids, partly based on their upbringing, react differently to gifts like this. She sounds deserving of a leg up. I’m sure your help will pay dividends in her future!
 
My father has started sending each of his kids a few grand a year as some pre-inheritance or whatever you want to call it. I guess that just means less for me as a cut being the executor. Maybe I should tell him to stop. ;)
 
I got manners, respect, love, and a solid work ethic from my parents. Worth far more than money. When they’re gone from this world, I will still have all of those things, and some truly great memories of them. I’ll be a millionaire of memories. ;)
 
Fiveslide said:
... Time to really buckle down and pay off the house and pack away money just in case.
Click to expand...
With respect, sir, I'll make another couple of suggestions: First, develop an estate plan that includes a testamentary special needs trust for your son and, until you get all that money packed away, carry plain vanilla term insurance to fund the trust. That way your son will be covered even if you don't make it to financial heaven. IANAL, however, so be sure to find a well-respected trusts & estates or elder law attorney. That attorney's expertise trumps mine on exactly the right way to get this done in your state.
 
My parents were frugal and since my Dad has died, my mom lives in an assisted living facility. Before he died, they sold all their property and bought CD's. It will be simple for my sister to divide the inheritance among the 8 of us when that time comes.

All of us have done well on our own and keep telling Mom to spend our inheritance on travel and good food.
 
I was talking to my grandkids about where they wanted to go to college and my daughter-in-law said she didn't think I had any say in it. I said I did if I was paying for it. After that she didn't complain.
 
Every family is different. There is a valid point that if you have enough to live your retirement comfortably and not be a financial burden on your kids, that probably means there's some left over at the end by default. Working longer/harder to make sure that your kids have an inheritance doesn't inherently sound like something I would do. However trying to make sure that my kids were set up for success out of school (whatever school that may be) like I was is something I could see working longer for.
 
Payoff the medical bills from his available savings then continue to work to rebuild the estate that he wants to pass down.
 
Does inheritance mean all that much anymore? These days it seems like 80 year olds are still living with their moms.

Banking some cash in a college fund for the kids is one thing, but working to save up just to give it away to someone else later? Maybe, if there's anything left after I'm done with it, then my kids can have it.
 
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