My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, February 27, 2012

Is it Morbid or Realistic to Plan for an Inheritance?

I have written several blog posts on estate planning and inheritances, including “Taking it to the Grave,” a blog I wrote for the Canadian Capitalist, in which I discuss whether parents should distribute future inheritances in part or in whole while they are alive and “How your Family Dynamic can affect your Estate Planning”  in which I discuss how parents have to navigate a minefield of family issues with respect to the determination of executors, the distribution of family heirlooms and the distribution of hard assets.

These blogs elicited a wide range of opinions and comments that I found fascinating. Some people believe they are better off because their parents made them work for everything and they don’t want any financial assistance from their parents either during their life or after they pass away. Others state that as long as parents are careful to ensure they don’t destroy their children’s motivation, partial inheritances make sense. Finally, others say they have been sickened as they observe children waiting at a parent’s deathbed salivating at the thought of their inheritance.

All this leads me to another very touchy subject; should a child (let’s assume the child is at least 40 years old) plan their own future based on a known or presumed inheritance? To add some perspective to this issue, it is interesting to note that a recent survey by the Investors Group states that 53% of Canadians are expecting an inheritance, with over 57% of those, expecting an inheritance greater than $100,000.

Inheritances can be categorized as either known or presumed inheritances. An inheritance would be categorized as known, when a parent(s) has/have discussed the contents of their will with their child(ren) or at least made known their intentions. In these cases, while the certainty of the inheritance in known, the quantum is subject to the vagaries of the parent(s) health, the parent(s) lifestyle, the income taxes due on the death of the last to survive parent and the economic conditions of the day. (Speaking of discussing the will with your children, it is very interesting to note that my blog post One Big Happy Family until we discuss the Will which had limited initial traction, is now by far and away the most read blog I have ever written).

An inheritance may be presumed where the financial circumstances of the family are obvious. A child cannot help but observe that the house their parents purchased 30 or 40 years ago for $25,000 is now worth $800,000 to $1,000,000, or that the cottage their family bought for $100,000 many years ago can be subdivided and is now worth $700,000.
Many average Canadian families have amassed significant net worth just by virtue of the gains on their real estate purchases. These families would not be considered wealthy based on lifestyle or income level, yet their legacy can have a significant impact upon their children. Inheritances are not only an issue for wealthy families.

I think most people will agree that where an inheritance will be so substantial that it will be life changing; parents need to downplay the inheritance issue and/or manage the inheritance by providing partial gifts during their lifetime. Rarely can a child become aware of a life-changing inheritance without losing motivation and experiencing a change in their philosophical outlook on life.

Although life changing inheritances are rare, life "affecting" inheritances are not. So, should children change how they live and how they plan for the future based on a known or presumed future inheritance? In my opinion, if the inheritance is known and will be substantial enough to alter a child’s current or future living standard, the answer is a lukewarm yes, subject to the various caveats I discuss below.

I think it is imprudent to ignore reality and where an inheritance has the attributes I note above, it should be considered as part of your future financial plan. However, I would discount the amount used for planning purposes significantly, to account for inherent risks. Those risks include the longevity of a parent, economic downturns that reduce your parent(s) yearly income stream,  potential medical costs and finally, the ultimate risk one takes in planning for an inheritance; the risk of somehow falling out of favour and being removed from your parent(s) will.

Where there is a presumed inheritance, I would suggest you need to be ultra conservative if you want to plan for the inheritance, since not only are you guessing at the inheritance amount, but you face an additional risk that your parent(s) may have offsetting liabilities such as a mortgage or line of credit of which you are unaware.

So what do the experts have to say on this matter? In the press release for the Investors Group survey, Christine Van Cauwenberghe, Director, Tax and Estate Planning, says that "Knowing the dollars and cents behind your inheritance can have an impact on your financial plans. It is smart to know what you can expect so you can plan accordingly and family dialogue is a good place to start."

Ted Rechtshaffen, a certified financial planner at Tri-Delta Financial, in a National Post article I discuss below, says "he may be in the minority but he encourages clients to count on their inheritances when planning to some degree." He however, goes on to say he tells clients to be super-conservative. Finally, he concludes with "I know it goes against the grain because you are counting on money you don't have", adding, "it depends where your parents are in their life cycle and how clearly they have signalled their intentions".

I think Christine and Ted's comments clearly point out the conundrum here, for which there is no black and white answer. It is probably unwise to ignore a known potential inheritance, but because the final inheritance is subject to so many variables, you must risk assess that inheritance and discount its quantum by a significant amount, such that your planning becomes a paradoxical situation.

But what if you see no risk in your parent(s) financial situation deteriorating and you feel you will never be removed from the will, how can your financial planning be affected? For argument’s sake, let’s say your inheritance will be large enough to affect your future planning, but not large enough to affect your motivation or change your lifestyle.

The most obvious change to your financial plan may be to underfund your RRSP. Most Canadians struggle to make yearly RRSP contributions. They live in mortal fear that they will not have enough money to live the retirement they envision. But, if you know your parent(s) have enough funds to live out their life/lives comfortably, and say your inheritance will be in the $300,000 to $500,000 range, do you need to make your maximum RRSP contributions?

Other planning issues include whether you should purchase a home out of your price range or underfund your children’s education fund, knowing that you will receive an inheritance to pay off the mortgage or to pay off any education related loans. Alternatively, you may over fund your child’s education by sending them to a private school you would never had considered without knowledge or presumption of a future inheritance.

How you deal with debt could also be affected. If you have debt, should you just limit it to a manageable level and not concern yourself with paying it down? Or alternatively, should you pay it off because you can reallocate funds once committed to your RRSP, TFSA or RESP, knowing your inheritance will cover your RRSP, TFSA or RESP?

We have all heard about about the huge debt level many Canadians are carrying. Based on comments made by Benjamin Tal, deputy chief economist for the CIBC, one wonders if at least subconsciously some of this debt level in being carried because people know they have an inheritance coming? Mr.Tal in an article in the Toronto Star on Baby boomers set to inherit $1 trillion says "people talk about how much debt there is without looking at the size of the potential assets to come. Debt is relative to your income today, but your wealth tomorrow will improve when an inheritance comes."

So, have I seen people bank on an inheritance? Yes. To date, where I have observed such behaviour, the inheritances have come as expected. However, these cases may not be predictive of future cases.

Is it morbid to plan for an inheritance? Clearly, it is. Would most people rather have their parents instead of the inheritance? Yes. This topic is a very touchy subject and an extremely slippery slope, but to ignore the existence of a significant future inheritance that would impact your personal financial situation may be nonsensical.  However, if your financial planning takes into account a future inheritance, you should ensure you have discounted that amount to cover the various risks and variable that could curtail your inheritance and be extremely conservative in your planning.

Post script:

As the expression goes "Those who hesitate are lost". I started writing this blog back in late November, but could not come to a conclusion (if one can call the lukewarm recommendation I suggest above a conclusion) until recently on whether one should or should not plan for an inheritance. Thus, this blog post just sat. In the interim there have been two excellent articles on this topic. The first by Garry Marr of the Financial Post, titled Windfall no sure thing from which I quote Mr.Rechtshaffen above and another article by Preet Banerjee of the Globe and Mail, titled An inheritance should be a windfall, not a financial plan.

In Preet's article he notes the potential flaws of incorporating an inheritance into your financial plan. He also concludes with some words of wisdom "There are enough variables affecting your own financial success. Ideally, you shouldn’t bank on an inheritance in your financial plan, but rather treat it as an unexpected windfall. Most people would rather give it up in exchange for having their parents back".

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.


  1. In my limited experience, people tend to vastly overestimate the size of estates and are sometimes suspicious of executors as a result. Another thing to consider is that you may be a decade or more into your own retirement before you see your inheritance.

    1. Hi Michael:

      In regard to being 10yrs into your own retirement when receiving an inheritance, that is quite possible. That is why in other blog posts I suggest parents consider partial payments when they are alive and the children can use the money (assuming they are confident there will be excess funds in the estate).

      In regard to overestimating the size of an estate, that only happens when someone is "presuming an inhertiance", if the parents have talked with their children, that is not an issue.

  2. Hi Mark:

    Another great post.

    I agree with parceling it out in stages (depending on time and funds available). Also, depending upon how responsible the receiver is.

    I still espouse the idea of dying with exactly $0 with all expenses paid :)

    This all depends on how large an estate is and number of beneficiaries. I can get it with leaving a long term trust that provides for "generations" but just making sure that your not controlling excessively even from the grave, times change and you need to leave a plan after death that is both flexible and adheres to your objectives.

    1. Thx Anon--Good advice. Only thing I would say is this blog post is really looking at your own kids, not the grandkids. A long term trust is fine for the grandkids, but not necessarily useful if you have adult kids you want to look out for.

      We both agree, that parceling it out in stages (depending on time and funds available)is a good idea. Personally if I was in a postion of having an excess estate, i would parcel it out while my kids could really use it to help buy a house, fund the grandkids education etc.

    2. I am intending to make gifts during my lifetime too. Not only can it do the most good when given at just the right time, it is also a lot more enjoyable to give (approx.100%) when you are alive to see it!
      As a potential beneficiary of a legacy, I would think it smart not to count on it but to make a contingency plan for the possibility. Like a lottery win, it is far easier to make a good plan you will stick with than when the moment hits and your brain risks going into a "feast and be merry, I'm rich" wasteful binge.
      As the world slowly continues to evolve to DC plans turned into RRIFs giving off highly variable investment returns, the uncertainty of an inheritance amount will increase. You will only know what you get when it happens.

    3. Hey Canadian Investor- Thx for stopping by, another great comment on this topic. As you know, I agree 100% with the gifting during your lifetime comment. A contingency plan is obviously the most prudent and conservative plan, however, if there is significant certainty to the inheritance, I think a severly discounted inheritance can be built into a plan.

      p.s.- I never noticed this, but you list Antartic exploration as an interest. Have you ever blogged on this topic, if so can you provide link, i would be interested to read what you have to say.

    4. Hi Mark, The closest I've come to blogging is a book review on Amazon about Scott of the Antarctic - see
      Right now I'm half way through Arctic Labyrinth about the British quest for the North West passage, an account of the centuries long effort, amazing if only for the sustained and repeated craziness that drove them on when it should have been obvious success was impossible. Maybe there are parallels and lessons for us today? e.g. how to know when to give up and try something different? Our age's prevailing belief, evidenced by the endless self-help, self-actualization books, seems to be that nothing is impossible if you set your mind to it.

  3. Wow the entitlement generation is alive and flourishing. As a father of four I believe the best thing you can do for your children is to teach them to be self reliant and work on their own success. If an inheritance is received it is a windfall, not part of a financial plan, similar to a lottery! Your parents might even out live you.

    1. Thx for your comment, all valid points. Only issue I have with your comment is that the blog was not written with the intention of saying kids are entitiled to an inhertiance, it was meant to be more along the lines that if you know you are receiving an inheritance and it is significant, should you ignore that reality or not and should you plan for it or not.

  4. I think it is really important to note that no matter what the value of the estate, no matter how well intentioned and structured the will, you can never know what the health care needs of your aging parents are going to be.

    It's during the last phase of their life that a huge chunk of wealth could be used up, and for very good reason.

    In my personal case, I'm getting to have an early sense of what my parents holdings are. Despite their half joking threats that all that will be left is the property (and I have learned to take care of myself), they still live quite carefully in retirement. Fixed income is fixed income.

    I've started to see the safety net they have built for themselves. As such I can't begin to guess what will be left. It's best to treat the money as a windfall if and when it arrives.

    Speaking of windfalls, if people are thinking of paying off accumulated debt with inheritances, they are not only losing the one time gain now, they will have rolled back the entire time it took their parents to accumulate the wealth as well. Like they say, you can't ever depend on having that money back again.

    1. Anon, thx for your comments. Your views are similar to those expressed by Preet in his article and I cannot argue against looking at an inheritance as a windfall. The debt issue is interesting, I am not even saying that is being done, but Mr. Tal's comments gave me pause for thought.

  5. If expecting an inheritance, family members should be involved in a real relationship with their parents - unfortunately, not to be assumed, especially with the distance people live from one another these days, and because some are unwilling to care for aging parents with health issues.

    1. Anon, your point about some people being unwilling to care for their parents brings us back to my second paragrpah where I discuss the 3 opinions people seem to have on this subject.

      This type of behaviour is why I say at the outset "others say they have been sickened as they observe children waiting at a parent’s deathbed salivating at the thought of their inheritance." Part of why they are sickened is the kids ignore their parents until they smell the money.

  6. I work as an advisor and I never assume inheritances in any planning, not only is it morally wrong in my opinion, medical advances are allowing people to live longer so they will need more money than before. Hardest estate planning I had to do was my own parents and I honestly wish they would spend more than they do but they believe they owe it to my sister to leave as much as possible so I structured it so a sizable chunk goes to their 4 grandchildren so a true family legacy is created.

    1. Hi Anon, thx for your comments. I respect your opinion and understand it, however, personally, I am not sure it is morally wrong where the parents have discussed the inheritance and it will most likely be material. Most advisors probably agreee with you and some will not. Its a touchy subject and that is why I wrote on it.

  7. Great post.

    An inheritance might be nice, sure, but it's probably not in my future. My parents, into their mid-60s, still have a mortgage and a fat line of credit. Thank goodness they both have DB pensions...otherwise, my wife and I would be supporting them financially.

    It's probably why I'm fearful of debt...another story.

    Back to this post, there is no substantial inheritance in my future. However, should some folks be in that position to offer an inheritance, if they have substantial wealth I think gifting is the way to go. You can't take it with you and you might as well enjoy the money with your family while you can.

    If my wife and I don't have children, we'll do doing this with our nieces and nephews. Actually, we've already started the process in a way, by buying them some dividend-paying stocks on each birthday. Hopefully in another 20 years, those stocks will be worth a good penny and provide at least part of their education.

    1. Hey MOA

      I agree with you whole heartedly, that where the circumstances allow it, gifting is the way to go. In my opinion, the ability to observe the joy your money provides or see the money used to assist in the purchase of a home or for the funding of your grandchild’s education is very satisfying. If I have the ability to do such, that is my intention.

      I also think it is great you purchase stock for your nieces and nephews on their birthday. The stock provides a valuable financial lesson for the child as they may learn to follow the market and understand the concept of dividends at an early age. My brother in law did that for my children; what he did that also helps with the educational process is that he would buy a stock like Apple or Under Armour, a name and product the kids already know and use.

  8. It is critical to plan for ordering one's eventual death. I would ask the older generation when they plan to die before giving financial advise because even though it is next impossible to predict, the some knowledge of its time is critical. I have found that adult children will sometimes gear their life style on the hope that they will inherit everything that their parents have now. I advise them that they need to gear their life planning for no inheritance.

    1. Hi Anon, do I detect a little sarcasm here. "I would ask the older generation when they plan to die". However, obviously a valid comment and key issue. But let me ask you, you have a client who will inherit a house worth $1million and his/her parents are in their 80's with a pension that covers their living expenses and they have say $500k in excess funds for a rainy day. Do you plan for say $500k at a minimum or not. If no, is your planning truly realistic. Just saying.

  9. For those who have the means, I believe in gifting funds while you are still living. I have done so.

    However before gifting; I recommend you are satisfied that you have sufficent assets remaining to take care of the financial obstacles old age may present to you. Also, be prepared to accept the possibility that your gifts may not be used wisely.

    1. Anon, I have stated in many of the replies above, that I also belive in gifting funds while living, with the caveat you note, that you are satisfied you have sufficent assets remaining and then I would still discount the gift.

      However, gifting allows you to potentially direct the use of the funds to prevent gifts from being used unwisely, such as for a house, cottage or education. Personally, if a child has a dream to go to Europe and they use the money for that, I am ok with that also. However, in the alternative, if you cannot direct the use of the funds or you think your children will be reckless, you can start with very small gifts to observe their behaviour and stop the gifts if they are reckless, saying you cannot afford future gifts.

  10. Hi Mark,

    I agree that gifting excess funds can be a good thing.

    However, some children would benefit from the gift much more than others but they don't want to be seen as the greedy child when other siblings advise the parent(s) to spend it all.

    Of course, being "depression kids", the parents aren't inclined to frivolous spending. So the question becomes how much is enough for the parent(s) comfortable retirement and what is superfluous ?

  11. GetSmartWithYourMoneyMarch 2, 2012 at 9:06 PM

    Hi Mark,
    Great post! I read the other articles you mentioned - yours is the best.

    Whenever this topic comes up with my clients, I recommend one of two choices. Plan A: Treat the inheritance like a windfall when it comes (don't add it to the plan and continue with the independent plan). Worst case (the money doesn't come for whatever reason), the client continues with their independent plan.

    Plan B: If they want something that requires inheritance money, discuss it with mom/dad and ask for an advance. If the request is reasonable (i.e. private school for their grandchild), this plan just might work. If the request is something else (i.e. a life size replica of the Batmobile), stick with Plan A and hope for the best.

    1. Hey Get Smart, do you use an Android shoe phone these days:)

      I really like your approach. You offer the conservative windfall approach, which based on many comments and Preet's article is a popular way to go, but you also reverse engineer the gifting option, I really like it. Some parents may consider this a bit cheeky, but on the other hand, if the inheritance is known and has been discussed and the parents agree with the potential use of the funds, I can see this working.