18 May Caution! You may not get that inheritance

Q. I know I’m not supposed to count on an inheritance, but my parents have $2 million and a paid up house and I’m their only child. Money is tight and I’d like to cut back on my retirement contributions, especially because I know I will get something eventually. What do you think?
— Cash strapped

A. We think you’re potentially heading into dangerous waters.

First, we get that your budget is tight. It’s great that you’re still saving for retirement despite your cash flow challenges.

But you can’t assume anything.

Rather than assume you’re going to receive a substantial inheritance to fund your retirement, you should plan to receive nothing, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

This will guide your decisions towards financial independence.

“If nothing else, your parents will respect you more if they know you are not merely looking for a handout,” Novick said.

Although you say you know you will get something, do you really know for sure?

Despite being an only child, your parents may not leave everything to you at their death, Novick said.

They may have siblings who have struggled financially — perhaps due to divorce or disability — and have a more urgent need for assistance than you, Novick said. And if your parents are charitably inclined, they could they make a big donation at their death.

You also never know how long your parents are going to live and if either or both will need to use their savings to support their own care in retirement, especially in their later years if they need long-term care.

If you haven’t done so already, Novick suggests you have a conversation with your parents about their plans.

“The awkwardness of starting this conversation can be mitigated by explaining how you are finding it difficult to save and that you are merely looking for guidance to help you plan for your own retirement,” he said. “Of course, your parents may not take kindly to this line of inquiry if you don’t have a good work ethic or if they feel your standard of living is too high.”

On the other hand, Novick said, if your parents feel they have far more than they will need for themselves, it may be appropriate to broach the subject of lifetime gifting to you now.

Because people are living longer and health care costs continue to escalate, having a financial planner prepare some projections would certainly be helpful to illustrate whether gifting now is a reasonable strategy, he said.

If your parents say yes, it would relieve some of the financial strain to save for your retirement and also help reduce your parents’ estate taxes later.

“A simple option is to utilize the annual gift exclusion, which is currently $14,000 per person — $28,000 per couple,” Novick said. “An estate attorney should be consulted before gifting additional amounts due to certain tax filing requirements.”

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This post was first published in May 2016.